The Voluntary Disclosures Program (“VDP”) provides taxpayers a chance to bring their taxes up to date. This includes individuals, corporations, trusts, and partnerships. Any taxpayer can utilize the VDP to request that CRA reduce interest and eliminate the penalties that would have been applied against the taxpayer if their tax non-compliance had been discovered through an audit. There are four requirements for a taxpayer to qualify under the VDP.
For a valid disclosure, the information being disclosed must be voluntarily offered by the taxpayer. In other words, if CRA determines that the taxpayer was aware of an audit, investigation, collections action, or any other enforcement action that is on-going or is impending from CRA or any other authority, and it is likely that the disclosed information would have been uncovered, the disclosure will not be valid. This also applies to any enforcement action that is taken by CRA or any other authority against a person associated with, or related to, the taxpayer. Finally, the same applies if enforcement action is being taken by CRA or any other authority against a third party where the action is sufficiently related to the information being disclosed by the taxpayer.
As an example, if Mr. X receives a letter from CRA informing him that he has been selected for an audit of his personal income taxes, a disclosure at that time of unreported income will not be considered “voluntary” by CRA, even if the audit has not commenced.
If, instead of Mr. X, his spouse Mrs. X has received a letter from CRA regarding an audit of her personal income taxes, Mr. X’s disclosure of unreported income may not be considered “voluntary” if it is likely that the audit of Mrs. X would have uncovered Mr. X’s tax non-compliance.
In certain circumstances, CRA enforcement action may not be fatal to the voluntariness of a disclosure. However, this analysis is typically nuanced and cannot be easily summarized for the purposes of this article.
Situations can arise where a taxpayer is non-compliant with their reporting responsibilities, but there is no penalty associated with that non-compliance. For example, where a taxpayer has not filed their return but there would be no taxes owing or in a refund position, the disclosure under the VDP would not be valid since there is no associated penalty.
That said, in most cases there is a late-filing penalty, a failure to remit penalty, or an omission penalty, in which case this condition for the VDP would be met.
3. One Year Past Due
The information disclosed must be at least one year past due, or be submitted along with information that is at least one year past due. In other words, an omission on foreign asset reporting for the last tax year will not qualify for the VDP unless it is disclosed in combination with omissions on foreign asset reporting for earlier years as well.
Full and accurate information must be provided to CRA in order for a disclosure to be valid. Although minor errors and omissions will not disqualify a disclosure, the taxpayer is expected to provide accurate documentation for the information that is being disclosed. This means that if a disclosure is made relating to unreported foreign / offshore assets, a taxpayer should be prepared to provide bank statements or similar documents to CRA upon request. Similarly, if unreported income is being disclosed, a taxpayer should be ready to provide copies of paystubs or other documentation that detail the amounts disclosed. If CRA cannot verify the details of the disclosed amounts, it is possible that the disclosure will be denied on the basis of being incomplete.
If you are unsure whether you qualify for the VDP or would like assistance to make a disclosure, contact one of our tax lawyers for a consultation.