While the federal tax system is highly complex, all taxpayers have the fundamental responsibility to fulfill their tax obligations every year. Taxpayers who knowingly violate tax laws may face serious legal consequences. Fortunately, by voluntarily reporting prior tax violations to the Canada Revenue Agency, it is possible to avoid prosecution and regain tax compliancy. The Voluntary Disclosure Program was designed for this purpose, allowing taxpayers to disclose their errors and legally rectify such situations. To get help with the complex matters of tax law, consider contacting the experienced lawyers at Jeremy Scott Law by calling (902) 403-7201.
What Is Voluntary Disclosure?
The Canada Revenue Agency (CRA) has put a program in place to allow taxpayers who have not upheld their tax obligations to remedy such situations without facing penalties or other legal consequences. This initiative is referred to as the Voluntary Disclosure Program (VDP). Through the program, Canadian taxpayers can rectify or make changes to previously filed tax returns, reveal information that has not already been provided to the CRA, and re-enter the tax system if they have been otherwise noncompliant. The VDP is a valuable option for many individuals, as the penalties associated with not meeting due diligence requirements are steep — typically between 50% and 100% of the taxes owed.
Who Can Apply for the Voluntary Disclosure Program?
The majority of taxpayers can file an application for the Voluntary Disclosure Program. This includes individuals, employers, and corporate entities, among others. Before a taxpayer can apply for the Voluntary Disclosure Program, they must ensure they qualify for relief. A taxpayer may be eligible if they:
- Did not meet tax obligations under the Income Tax Act.
- Failed to report taxable income they received.
- Incorrectly claimed expenses on a tax return.
- Did not remit source deductions.
- Failed to file information returns.
- Neglected to report any foreign-sourced income that is subject to tax in Canada.
A CRA officer will assess all applications on a case-by-case basis to decide whether the applicant has met the eligibility requirements and whether they qualify for relief. If you are unsure whether you qualify to apply for the Voluntary Disclosure Program, consider contacting a knowledgeable Canadian tax lawyer at Jeremy Scott Law to discuss your situation in further detail.
How Does the Voluntary Disclosure Program Work?
After an individual or business has confirmed that they qualify for the VDP, they may submit an application with the CRA. All tax returns and relevant forms must be included with the Form RC199, Voluntary Disclosures Program (VDP) Application. This form requires information regarding the applicant’s noncompliance as well as a declaration and signature from the applicant and their lawyer.
For an application to be considered valid, the following five conditions must be met:
- It must be submitted voluntarily, before the CRA takes enforcement action against the taxpayer. A disclosure will not be considered voluntary if the taxpayer is aware that the CRA is going to open an investigation or if the CRA has already contacted the taxpayer to request information that would reveal noncompliance.
- It must be completed accurately and include all required information and paperwork.
- It must include the application of a penalty.
- It must contain information that is a minimum of one year past due. For years in which the filing due date was extended, the VDP usually considers the original due date.
- It must include payment of the approximate tax owing. If the taxpayer is not able to pay in full at the time of submitting their application, petitioning for a payment arrangement is possible.
Beginning in 2018, the Voluntary Disclosure Program was updated to include two tracks for disclosure:
- General Program. This track is available for minor and unintentional errors. Taxpayers who use the General Program will typically qualify for relief from prosecution and penalties as well as a portion of the interest owed, in some cases. Interest relief under the VDP is capped at half of all interest owed up to 10 years preceding the three most recent years of returns that must be filed.
- Limited Program. This track is used for major or intentional omissions. It provides relief from criminal tax evasion charges, but there is no relief for interest owed. When assessing whether a taxpayer qualifies for the Limited Program, the CRA may consider whether efforts were made to avoid detection, the dollar amounts involved, how many years the taxpayer was noncompliant, and the sophistication of the taxpayer.
Overall, the General Program is the preferrable option because of the benefits it provides to qualifying taxpayers. If a taxpayer disagrees with the decision made regarding their application, they may petition for review. It should be noted, however, that if an application is denied as incomplete, the CRA will not consider a request for review and will also deny any subsequent applications. This further underscores the importance of fully completing the initial application and mitigating all potential errors related to the documentation.
How Many Times Can I Apply for the Voluntary Disclosure Program?
While filing a second VDP application is possible, such applications will only be considered in certain situations. Typically, the CRA will only consider second applications if the circumstances surrounding the application are beyond the applicant’s control and related to an entirely different matter than the first application.
Contact an Experienced Tax Lawyer Today
The legal consequences associated with tax noncompliance can be incredibly daunting and anxiety-inducing. At Jeremy Scott Law, we work alongside taxpayers to avoid potential interest, penalties, and tax evasion charges. Our team of experienced tax lawyers understands how to navigate the Voluntary Disclosure Program and ensure our clients’ rights are protected at every step of the process. To begin the process of resolving your tax situation, consider contacting us at (902) 403-7201 today.