Tax Reporting with the CRA’s Voluntary Disclosure Program
Do you have unreported income? If you do, you may be able to clean up your tax reporting by using the voluntary disclosure program offered by the Canada Revenue Agency (“CRA”). The program enables taxpayers who meet certain conditions to report previously unreported income and to correct inaccurate or incomplete information previously filed with the CRA.
The benefit of making a voluntary disclosure under the program is that if the CRA accepts it, you won’t be subject to penalties or prosecution, and you’ll only have to pay the tax or other amount assessed plus interest. If you don’t voluntarily disclose the inaccurate or incomplete information and the CRA discovers it (for example, during an audit or from an anonymous tip), then you’ll have to pay penalties as well as interest on the amount owed and, depending on the circumstances, you could also be prosecuted.
You can make a voluntary disclosure for income tax, excise tax, excise duties, source deductions, or GST/HST, and for any taxation year or reporting period ending within the last 10 years. You have to satisfy specific conditions to qualify for the program.
How to Qualify for the Program
To qualify for the CRA’s voluntary disclosure program, you must have:
claimed ineligible expenses on a tax return; or
report taxable income or GST/HST;
report foreign source income that is taxable in Canada;
remit employee source deductions;
file an information return; or
fulfill any obligation under applicable legislation.1
To make a valid disclosure under the program, you have to satisfy the following four conditions:
The disclosure must be voluntary. Generally, this means that you must not know that the disclosed information is going to be subject to an audit, investigation or enforcement action by the CRA, and the CRA must not have started an enforcement action against you, a related person (such as a spouse, shareholder, corporation or partner) or, in some circumstances, a third party, which is likely to uncover the disclosed information.
The disclosure must complete. You have to submit to the CRA by the required deadlines all of the correct facts and supporting documents for all of the relevant tax years or reporting periods where information was inaccurate, incomplete or unreported.
The disclosure must potentially involve the application of a penalty, such as a late filing penalty, a failure to remit penalty, an installment penalty or a discretionary penalty.
The disclosure generally must include information that is at least one year past due. (The disclosure can include information that is more recent as long as it contains information that is at least one year past due, or it corrects a previously filed return.)
How to Make a Voluntary Disclosure
To make a voluntary disclosure, you (or your authorized tax advisor2) must submit to the CRA a completed Taxpayer Agreement Form, all the relevant facts and supporting documents, the reasons for the disclosure, and a statement explaining how all four of the conditions described above have been satisfied. If you’re unable to include some information with the initial disclosure, the CRA may give you up to 90 days from the effective date of disclosure to submit it. The voluntary disclosure request should be sent to the appropriate CRA Tax Centre serving your region.
If you’re unsure about proceeding with a voluntary disclosure, you can ask your authorized tax advisor to have a preliminary “no names” discussion with a CRA officer. In this situation, the CRA will only provide a final and binding decision once all the facts of the disclosure have been verified (including your identity) within 90 days of the effective date of disclosure.
If you’d like to learn more about the CRA’s voluntary disclosure program, or if you have any questions about this article, please contact the authors.
By Natasha Miklaucic & Stephanie Wong
Natasha Miklaucic and Stephanie Wong are with the law firm Borden Ladner Gervais LLP
Situations where you cannot use the voluntary disclosure program include: the use of tax elections or elective tax rollover provisions; income tax returns where no tax was owing or a refund was expected (these are handled under the CRA’s normal processing procedures); bankruptcy income tax returns; requests for relief from penalties and interest after you have been assessed; and advance pricing arrangements relating to the pricing of transactions with related non-residents.
If you make a voluntary disclosure (either on a named or no-name basis) through an authorized tax advisor, you should be aware that your communications with your advisor will only be “privileged” (i.e., confidential and not able to be disclosed without your consent) if your advisor is a lawyer. Solicitor-client privilege does not apply to communications with other types of tax advisors such as accountants.