Voluntary Disclosure Tax Lawyers
Taxpage provides quality tax solutions to individuals and businesses nationwide, including navigating Canada’s Voluntary Disclosure Program.
Our tax lawyers work with our clients to help them understand the eligibility criteria and application process to ensure they have the insight and resources they need to receive voluntary disclosure approval.
Learn how our VDP specialists can help you get started.
The VDP is a policy of the CRA or the Canada Revenue Agency to allow non-compliant Canadian taxpayers to come back into the tax system. In this program, taxpayers in Canada can correct or make changes to the tax returns they have already filed. They can also reveal information that has not been previously provided to the CRA when they filed their tax returns or submitted unfiled tax returns for prior years.
Starting March 1, 2018, the updated Voluntary Disclosure Program in Canada introduced a two-track program for voluntary tax disclosures. There is a Limited Relief Program for tax non-compliance with an element of intentional conduct or for corporations with gross revenue exceeding $250 million dollars and a General Program for everything else. CRA will consider the following factors in deciding if the taxpayer can only disclose under the Limited Program:
- Any efforts made to avoid detection
- The dollar amounts involved
- The number of years of non-compliance
- The sophistication of the taxpayer
Compared to the previous program, and the new general program, tax relief for Canadian taxpayers under the Limited Program is significantly curtailed. While relief from criminal tax evasion charges is still provided, there will be no interest relief. Furthermore, there will be no penalty relief except for gross negligence penalties.
In addition to curtailing available relief, taxpayers who accept relief under the Limited Program also have to waive their rights to appeal within the CRA’s Appeals Division by way of a Notice of Objection, as well as appeal rights to the Tax Court of Canada. This is related to tax matters disclosed in the VDP or any related assessments, except for calculation errors, characterization issues, or issues other than those tax issues disclosed under the CRA Voluntary Disclosure Program. Whereas taxpayers can still file a Notice of Objections and appeal to the Tax Court of Canada under the General Program.
Generally, taxpayers will prefer to be accepted under the General Program rather than the Limited Program. The General Program is available to Canadian taxpayers who are not restricted to the Limited Program. It will be similar to the old VDP except that the interest relief available under the new General Program will be curtailed compared to the old VDP. Interest relief under the new VDP is only half of all interest owed up to ten years preceding the three most recent years of returns required to be filed — whereas interest relief under the old program was 4% of the principal amount owing, except for tax owing as a result of the past three assessments for which there was no relief. There will also be no relief beyond ten years preceding the most recent year.
In addition to the two-track program, the new system also replaces the no-name disclosure with pre-disclosure discussions. Taxpayers may still disclose matters to the CRA anonymously and receive feedback from the CRA. However, compared to the old No-Name Disclosure Program, taxpayers can no longer be accepted into the VDP through anonymous discussion. The pre-disclosure will be done through CRA’s general enquiry line. Typically, the CRA’s general enquiry line is unable to effectively deal with VDP discussions which means, in practice, the pre-disclosure discussion will generally be of no benefit.
Voluntary Disclosure Program Disclosure Eligibility
Eligibility for the CRA Voluntary Disclosure Program includes disclosures for excise taxes, income tax filings, source deductions, duties under various statutes and GST/HST filings. Canadian taxpayers will still have to make all necessary tax payments and pay interest charges (possibly at a reduced rate) to the CRA — but there will be no criminal prosecution.
Does The CRA Accept All CRA VDP Applications?
The CRA does not accept all Voluntary Disclosure Program applications in Canada. Starting March 1, 2018, the new voluntary eligibility includes the requirement that taxpayers pay their estimated tax owed to participate in the CRA program. Taxpayers must come up with their estimates of tax owing and pay that amount up front in order to participate in the VDP at all. In addition to this new condition, you will also have to meet old requirements for the CRA to accept the disclosure you are making and for you to benefit from the no criminal charges or penalties clause. The old requirements are:
- Voluntary: the CRA must have no knowledge about the taxpayer’s tax owing.
- Complete: the taxpayer must disclose tax information on all tax years in which the filings were inaccurate.
- Tax Owing: the taxpayer must owe tax to the CRA due to inaccurate filings. VDP does not apply to situations where the taxpayer is owed tax refunds.
- One Year Past Due: the taxpayer can only disclose information for tax years that is at least one year past the filing due date.
However, whether the taxpayer is accepted into the VDP at all depends on the specific authorized VDP agent. In other words, the CRA officer is going to decide whether you have met all the requirements and whether your application is going to be accepted or not. Our expert Canadian tax lawyers can provide detailed preparation and submissions to the Voluntary Disclosure Program in Canada go through each of the criteria to ensure that all the tests are met to the satisfaction of the CRA VDP to maximize our client’s chances of being accepted into the general voluntary disclosure program.
Is There Any Time-Limit for Providing Information and Documentation for the Disclosure, So That the Application Is Not Rejected?
You’ll have a 90-day time limit. It begins with the EDD or the Effective Date of Disclosure. This is the day when the CRA has received the completed application submitted by your authorized Canadian tax lawyer.
You may ask for an extension in writing if you need it.
- Letter to Minister of National Revenue
- Response from Minister of National Revenue
Voluntary Disclosure beyond Ten Years
CRA’s information circular IC00-1R6 sets out CRA’s administrative policy regarding the Voluntary Disclosure Program in Canada. As a matter of general rule, paragraphs 17 and 18 of CRA’s information circular sets out a 10-year limitation period for CRA’s ability to grant relief.
However, the tax years before the 10-year limitation could still be relevant for the following two reasons. First, even when the source of a taxpayer’s non-compliance stems before the 10-year limitation period, CRA still has the authority to grant relief for interest accrued during the 10-year limitation period. Paragraph 18 of CRA’s information circular states:
“The Minister’s ability to grant interest relief is limited to the interest that accrued during the 10 previous calendar years before the calendar year in which the application is filed. This is the case regardless of the taxation year (or fiscal period) in which the tax debt arose. “
Second, tax years beyond the 10-year limitation period could be relevant to the validity of a CRA VDP form. One of the requirements for the Voluntary Disclosure Program is completeness. If a taxpayer was non-compliant for the years within the 10-year limitation period and before the 10-year limitation period, then it would be prudent to disclose all the non-compliant years when filing a VDP form. Since the acceptance of a voluntary disclosure form is discretionary, disclosing non-compliance before the 10-year limitation period would lower the chance of a rejection on the completeness ground.
Voluntary Disclosure for Foreign Assets
While Canadian taxpayers are obliged to pay tax on the income generated from foreign assets, Canadian taxpayers are not taxed for owning assets overseas. However, through the T1135 form, Canadian taxpayers are required to disclose foreign assets when said assets, including cryptocurrency such as bitcoin, are worth more than $100,000.00 CAD in value.
There is also a filing requirement to submit a form T1134 for foreign corporations owned by a Canadian taxpayer.
The foreign assets disclosure requirement came into effect in 1997, and the penalty amount for failure to file can be high. Paragraphs 35 and 36 of the CRA’s Voluntary Disclosure Program information circular set out the applicability of penalties as one of the criteria for a valid application. Therefore, Canadian taxpayers can still use the VDP to disclose their previously undisclosed foreign properties and receive interest and penalty relief.
As CRA entered into mutual tax enforcement agreements with countries around the world, more and more overseas financial institutions are being obliged under these international agreements to disclose their Canadian client’s information to the CRA. Filing a VDP form to correct the failure to file T1135 or T 1134 can be useful for Canadian taxpayers to stay ahead of any possible CRA tax audits and receive interest and penalty relief.
VDP Penalties
Under the new VDP that came into effect on March 1, 2018, two separate programs, a general and a limited program, were created that granted different penalty relief based on which of the two programs an application was accepted.
Under the general program, a taxpayer would be granted penalty relief for all penalties arising within the 10-year limitation period. However, under the limited program, a taxpayer would not be granted penalty relief for any gross negligence penalties but would be granted relief for other penalties within the 10-year limitation period.
In addition, paragraph 66 of CRA’s information circular on CRA voluntary disclosure sets out the requirement for a taxpayer to waive their rights to object to CRA’s reassessment of matters related to the application once that taxpayer’s application has been accepted. This means a taxpayer who has been accepted under the limited program cannot appeal CRA’s imposition of gross negligence penalties.
When a VDP application is only accepted under the limited program, a taxpayer would not be entitled to appeal CRA’s decision to impose such penalties even if the penalties were unfairly imposed. Therefore, it is extremely important for a Canadian taxpayer who is considering filing a CRA voluntary disclosure form to maximize their chance of being accepted into the general program. Our experienced Toronto tax lawyers will guide you through the complexities of a VDP application to ensure your chance of being accepted under the general program is maximized.
Case Studies
Our Ontario tax law firm was contacted by John from Oakville, who had been charged with commercial fraud and had not reported the income from that fraud. We advised him that income from criminal activities is fully taxable and that the police always reported this type of activity to CRA. Our Toronto tax lawyers submitted a voluntary disclosure for the unreported income, and he was able to avoid prosecution for tax evasion and incurred no penalties.
Jeanne from Toronto approached our Canadian tax law firm on behalf of her mother, who resided in Montreal. Her mother had inherited 2 Swiss bank accounts, one with Swiss francs and the other with gold bars, on the death of her husband. The bank accounts had not been reported to CRA. The advice that our Toronto tax lawyers gave her was to submit no names voluntary disclosures on behalf of the estate and her mother for unreported offshore income and unfiled T1135 offshore asset forms. We convinced CRA to limit the disclosure to the past 10 years. The tax department did not charge penalties and reduced the rate of interest charged on unreported income.
C immigrated to Canada from Israel in the 1980s after working for a number of years in Africa and settling in Toronto. He had opened Swiss bank accounts to deposit his African earnings. He did not know that as a Canadian resident, he was required to report his worldwide income and offshore assets in excess of $100,000. He and his wife M also inherited a condo and funds in Israel. Our Canadian tax lawyers submitted an application on behalf of C and M and retained an accountant to prepare the tax returns and T1135 forms. We had extensive discussions with CRA about the number of years to file and persuaded them to limit the tax returns to 10 years. C and M did not have to pay any penalties and paid a reduced rate of interest on the unreported offshore income.
Robert is based in Manitoba but works overseas in the oil patch. His employer pays his foreign taxes, but his Canadian accountant did not properly report all of his foreign income due to the tax payments. Our Manitoba income tax lawyers submitted an application on his behalf and worked with his accountants to submit amended Canadian income tax returns. He avoided all penalties on the unreported offshore income and was charged a reduced rate of interest on the taxes owed.
Tax Tips – New Voluntary Disclosure Program
Our experienced Toronto tax law firm can tell you what you can expect from your dealings with the CRA’s VDP. A professional Canadian tax lawyer at our firm will advise you whether you qualify to be a part of the Voluntary Disclosure Program in Canada at all and, if so, under what track you are likely to be accepted. We will defend your rights while we are representing you in all dealings with the CRA.
Our top Canadian tax law firm serves both self-employed individuals and businesses. Initial general email or phone response is free. So here’s your opportunity to get all your questions and concerns answered.
All Taxpage consultations are completely confidential.
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