Overview of Voluntary Disclosure Program
The Canada Revenue Agency’s “Voluntary Disclosure Program” (the “VDP”) encourages taxpayers to voluntarily disclose unreported income. The Voluntary Disclosures Program promises that a taxpayer who voluntarily discloses previously unreported income will not be prosecuted for tax evasion, will not have any civil penalties imposed and reduce interest related to statute-barred years if the taxpayer’s disclosure meets the four VDP conditions.
This program waives civil penalties and avoids criminal prosecutions for those who volunteer to act in accordance with their legal responsibilities, as under the Customs Act, Customs Tariff, Income Tax Act and Excise Tax Acts by reporting their affairs before the Canada Revenue Agency (CRA) begins any action or investigation.
Persons that use this program will pay the taxes owing and interest but penalties will be waived. As well, policies exist that acknowledge uncontrollable circumstances can provide relief from interest in certain situations.
This program also allows for anonymous disclosure under the No-Name Policy, which protects the identities of the complying taxpayers.
If a taxpayer decides to keep his or her identity anonymous and confidential, he or she will be able to proceed with disclosure, free of prosecution for 90 days.
The 90 day period begins from the “effective date of disclosure,” which is determined by the date of a written voluntary disclosure submission or the receipt of a VDP-1 Taxpayer Agreement Form as received by the CRA tax services office.
This period allows for the taxpayer to prepare and submit a complete disclosure without any Canada Revenue Agency interference or prosecution. This anonymity is even applicable if the unreported income has been earned off-shore or through criminal activity.
The Voluntary Disclosures Programcan be applied in several scenarios including:
- Failure to report income
- Income with inaccurate or missing information
- Income earned off-shore or from criminal activity
- Not filed tax returns
- Improper expense claims
- Not remitted source deductions
- Neglecting to retain a portion of a purchase price on the acquiring of assets from non-residents under section 116 of the Act.
Four conditions must exist for an individual to use Voluntary Disclosure:
- The disclosure must be voluntary. If you are already being investigated, it is most likely too late. You must initiate the disclosure and contact the Canada Revenue Agency before they contact you!
- The disclosure must be complete and accurate. Previously pardoned penalties will be applied if a person reveals only partial information or provides information with material errors.
- The disclosure needs to involve a penalty. If no penalty exists, declare and file as usual.
- Disclosure must be information that is over one year old or, if less than one year, not simply employed as an attempt to use this program to file late and avoid penalty.
First Stage or Initial Voluntary Disclosures Program Submission
If you have never filed all your income tax returns or have filed them incorrectly, this information is for you. And you don’t need a costly tax lawyer to assist you with this.
Our approach to submitting a Voluntary Disclosure depends on each set of facts and circumstances.
Generally we discuss the circumstances surrounding your proposed disclosure with you to determine the best way to proceed with Canada Revenue Agency. Second, we prepare “named” or anonymous Voluntary Disclosures Program legal submission to the Canada Revenue Agency disclosing some facts and law surrounding the Voluntary Disclosures Program and to support our position that your undeclared income should be accepted and protected from criminal prosecution and civil penalties. In this way, we provide you with insight into the Voluntary Disclosures Program process, confirm how the Canada Revenue Agency is likely to audit the information disclosed and obtain the Canada Revenue Agency’s preliminary position as to whether the Canada Revenue Agency is likely to accept our client’s disclosure under the Voluntary Disclosures Program.
In many cases, the Canada Revenue Agency accepts our disclosure under the Voluntary Disclosures Program. However, in some cases, the Canada Revenue Agency can deny our initial disclosure on the basis that the disclosure allegedly violates one of the four Voluntary Disclosures Program conditions. If the Canada Revenue Agency denies one of our clients’ disclosures, we determine whether the Canada Revenue Agency’s decision is correct. If the Canada Revenue Agency’s decision is incorrect, we prepare detailed submissions to dispute the Canada Revenue Agency’s decision by filing an application for administrative review. However, this is rarely required.
Second Stage
If our initial Voluntary Disclosures Program submission is denied, we can write to the Director of the Canada Revenue Agency tax services office or to the tax centre to ask the Canada Revenue Agency to reconsider its decision to deny the taxpayer’s initial Voluntary Disclosures Program submission. The tax payer’s second request is called a request for administrative review. The taxpayer’s request for administrative review can adopt various tactics (or combination of tactics) to dispute the reasonableness of the Canada Revenue Agency’s decision to deny the taxpayer’s initial request including, but not limited to, the following:
(1) the taxpayer can simply resubmit the initial submissions
(2) the taxpayer can dispute the Canada Revenue Agency’s logic and reasons on which the Canada Revenue Agency relies to support its decision
(3) the taxpayer can provide additional facts and evidence
A taxpayer’s application for administrative review is the taxpayer’s last opportunity to provide any arguments, reasons, facts or evidence to support the taxpayer’s contention that the Agency should be prohibited from prosecuting the taxpayer for tax evasion and imposing any civil penalty. If the Canada Revenue Agency denies the taxpayer’s request for administrative review, the Federal Court will only consider submissions and evidence that were included in the taxpayer’s initial request and/or request for administrative review. It is critical that a taxpayer’s application for administrative review include all relevant facts, legal submissions and evidence.
Third Stage
If the Canada Revenue Agency denies the taxpayer’s request for administrative review with the assistance of a lawyer, the taxpayer can apply to the Federal Court to dispute the reasonableness of the Canada Revenue Agency’s decision. This is called an application for judicial review. Time is of the essence at the Judicial Review Stage. The general rule is that the taxpayer must file his or her application for judicial review in the Federal Court within 30-days from the time that the Canada Revenue Agency communicated its decision to the taxpayer. If the taxpayer does not apply/file an application for judicial review within the 30-day period, s/he may apply for an extension of time.
Conclusion
If you have any questions with respect to the above matter, please contact Joseph A. Truscott at 905 528-0234 x. 224 or e-mail Joe at:[email protected].
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