The Canada Revenue Agency (CRA) has processed 29.1 million returns in 2022 as of this writing. Were you unable to file your income tax return? Do you have any undeclared or unreported income, or have you made errors in your tax filings? You could be in some trouble.
The government requires Canadian residents and newcomers to file tax returns, but many are non-compliant. Non-compliance generally leads to unsuspected tax liabilities, and failure to pay will accrue penalties and interest. Sometimes, non-payment can result in imprisonment.
Before the CRA discovers and contacts you about these, you can voluntarily come clean to fix them. Non-compliant Canadian taxpayers can come back into the tax system through CRA Voluntary Disclosure. However, it’s a case-to-case basis and may not always be the best path.
If you’re considering availing of the CRA Voluntary Disclosure Program, here’s everything you need to know about it in 2022.
What is the CRA Voluntary Disclosure Program?
The CRA Voluntary Disclosure Program (VDP) is for non-compliant taxpayers. It allows them to correct errors in their tax filing and deal with unfiled tax returns. It can also help address source deductions, foreign assets, and unreported income.
If the CRA accepts your VDP application, you’ll have to pay the taxes owed and the applicable interest. But note that you can also use it to request relief from prosecution, interest, and penalties.
The kind of relief you’ll receive will depend on the track you place your case. On March 1, 2018, the CRA introduced the following two tracks for the Voluntary Disclosure Program.
The General Program is for taxpayers who want to correct unintentional errors. The CRA won’t charge penalties or initiate criminal prosecution for any information or issue the taxpayers discloses.
Suppose the CRA accepts applications under this track. In that case, it will compute partial interest for years before the three most recent years of returns.
The new Limited Program is for taxpayers who intentionally avoided their tax obligations. The CRA will not pursue prosecution and charge gross negligence penalties for the accepted applications under this program. But taxpayers will still be charged total amounts of other applicable penalties and interest.
Who is Eligible for the Voluntary Disclosure Program?
You cannot avail of the VDP to cover unfiled tax returns for previous years because you got caught. Only those with applications that meet the following criteria will be eligible for the VOP.
- Voluntary or self-initiated – You cannot avail of the VDP once the CRA contacts the taxpayer for non-compliance related to previous tax returns. The same applies when the taxpayer is aware that CRA is about to conduct an investigation.
- Complete and includes all information for all the years for correction – A partial correction with other errors in the tax return can put you at risk of penalties.
- Involves potential penalty or interest
- At least one year past due for income tax returns
After applying for VOP, you will receive a notice specifying whether the CRA accepts it or not. Remember that the program doesn’t automatically exempt you from paying the taxes and interest on your new returns. The CRA may waive some penalties, but it will still depend on the case. They will also audit every piece of information provided in your VDP application.
When Should You Make a Voluntary Disclosure?
The VDP is only applicable for tax issues that are ten years old or less. The CRA can only provide interest and penalty relief within the limitation period for tax issues older than that.
Let’s say you submit your VDP application in 2022. In this case, relief will only be available from the 2012 tax year forward. You should apply for the VDP ten years or earlier than the tax year in question to be eligible.
Make a Voluntary Disclosure With a Tax Professional
Although you can do it independently, making a voluntary disclosure with the help of a tax professional will benefit you. Remember that CRA doesn’t accept all VDP applications and only grant relief on a case-to-basis.
A tax professional will know what circumstances may disqualify a disclosure and what items to include in the report. They can help defend your rights and represent you in all dealings with the CRA. If the CRA rejects your VDP application, a tax professional can help submit a second-level review request.