Voluntary Disclosure

Purpose of Voluntary Disclosure

The Canada Revenue Agency’s Voluntary Disclosures Program is a fairness initiative that gives taxpayers the opportunity to come forward and to correct inaccurate or incomplete information, or to disclose previously unreported information, without incurring penalties or income tax evasion charges or prosecution.

You Must Meet 4 Conditions to Qualify for a Valid Disclosure

  1. The Canada Revenue Agency determines that the disclosure is voluntary;
  2. The Canada Revenue Agency determines that the disclosure is complete;
  3. The disclosure involves a penalty, and
  4. The disclosure must include information that is:
    (i) at least one year past due, or
    (ii) if less that one year past due, not initiated simply to avoid the late filing or instalment penalties.

No-Name Voluntary Disclosure Policy

The no-name disclosure policy provides that should a taxpayer decide to proceed with a no-name (hypothetical) disclosure the identity of the taxpayer must be provided to the Canada Revenue Agency within 90 calendar days from the “effective date of disclosure”.  The “effective date of disclosure” for a no-name disclosure is either the date of receipt by a Canada Revenue Agency tax services office of a written voluntary disclosure submission or the receipt of a completed form VDP-1 – Taxpayer Agreement form, as used for the Voluntary Disclosures Program.

During this 90-day period the taxpayer is protected from the application of penalty and from prosecution.  The no-name voluntary disclosure file will be closed without further contact from the Canada Revenue Agency, if at the end of this 90-day period the identity of the taxpayer remains unknown no extension to this 90-day period will be allowed to identify the taxpayer.

In addition, a final and complete submission of the disclosure is expected within this 90-day period.

If you are hesitating about filing your current years’ Canadian personal income tax return by the deadline because you have not filed return for previous years, you should make a voluntary disclosure with the Canada Revenue Agency and file your return on time.

A voluntary disclosure application can be submitted to the Canada Revenue Agency for an individual even if the individual is a shareholder or director of a corporation and the corporation is the subject of a request to file returns or an audit.  However, this is sometimes a “grey” area and you should discuss this with your Chartered Accountant.

The position of the Canada Revenue Agency is that a voluntary disclosure must be substantially complete in order to be accepted as valid.  However, a taxpayer must only make his reasonable best efforts to ensure that his disclosure is substantially complete, rather than meet some arbitrary test as to what constitutes completeness.

A voluntary disclosure application may be considered to be voluntary if a computer generated notice to file a return was generated by the Canada Revenue Agency and if the notice was not received by the taxpayer or if a significant amount of time has passed since the date of the last notice and the date of the disclosure.

The Canada Revenue Agency has recently changed its rules for interest reduction on a voluntary disclosure.

Foreign pension income must be included in your tax returns.  If you haven’t included your foreign pension income, you can apply for a voluntary disclosure to report these amounts.

The Canada Revenue Agency has wide powers of inquire and investigation under the Canadian Income Tax Act, including the power to demand records and information.  A person who refuses to comply with the requirement to provide information is subject to prosecution under section 238 of the Tax Act.  Consider retaining a Canadian taxation lawyer who has experience in these areas for assistance.

Once the Canada Revenue Agency commences an investigation to look for evidence of tax evasion, the protections afforded by the Canadian Charter of Rights are applicable and Canada Revenue Agency can no longer use its statutory audit and investigation powers such as the requirement to provide information set out in the Income Tax Act.

If Canada Revenue Agency has challenged any Canadian income tax returns that you have filed, be sure that you keep all original documents related to the year being challenged until the matter is finally settled.

Conclusion

We have been assisting taxpayers with Voluntary Disclosure for many years.  If you have any questions with respect to your situation, please contact Joseph A. Truscott at 905 528-0234 x. 224 or e-mail Joe at:  joetruscott@josephtruscott.com.