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Voluntary Disclosures Program

Empowering Canadian Taxpayers: Navigating Canada's Self-Reporting Income Tax System

At ProBusiness Tax and Accounting, we understand that Canada's income tax system operates on a self-reporting and self-assessing basis. Unlike other tax systems where governmental bodies directly assess taxpayers, in Canada, the responsibility of correct income reporting and accurate tax assessment falls upon the taxpayer.

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The system could be more flawless even though the government gathers data through several financial intermediaries, audits, and information requests. As a result, there remains a risk that unreported or misreported income may not be detected for an extended period. The Canada Revenue Agency (CRA) offers the Voluntary Disclosures Program to address this issue and encourage voluntary compliance.

The challenge for the Voluntary Disclosures Program lies in balancing encouraging tax compliance with ensuring no undue rewards are provided to non-compliant taxpayers.

Understanding Self-Reporting and Self-Assessing System:

The onus of reporting various income sources and gains falls on the taxpayer, who must also determine their tax liability. They must understand which of their incomes or gains are taxable and which are not and how these taxable amounts should be characterized.

Once the income is self-reported, the taxpayer must self-assess the taxes due to the government by correctly calculating the various amounts, applying for deductions or credits, and determining the balance due.

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Deciphering the Voluntary Disclosures Program:

Also known as the tax amnesty program, the Voluntary Disclosures Program allows taxpayers to rectify errors on their tax returns or report previously unreported amounts. Regardless of the reasons behind non-compliance, this program offers an opportunity and incentives to rectify tax reporting issues.

Changes were implemented in the program from March 1, 2018, introducing two tracks – the General and Limited programs. While the General Program offers full penalty relief, some interest relief, and protection from criminal prosecution, the Limited Program provides only limited relief. In addition, it applies to taxpayers with elements of intentional non-compliance.

In the Limited Program, financial relief is constrained, and taxpayers must waive certain rights for acceptance. These rights include the ability to object to the assessment resulting from the disclosure and the right to appeal to the Tax Court of Canada.

Key Criteria for Voluntary Disclosures Program:

The CRA has set specific criteria for acceptance into the Voluntary Disclosures Program:

- The disclosure must be voluntary, complete, and involve taxes owed by the taxpayer
- The information must be over a year old
- The taxpayer must estimate and pay the taxes owed or agree to a suitable payment arrangement

Given the potential complexities, we recommend seeking the assistance of a Chartered Professional Accountant (CPA) who specializes in disputes with the CRA.

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Why Should You Come Forward?

The CRA has no absolute limitation period, which means they can audit or assess a taxpayer at any point in their financial history. The penalties and interest rates for non-compliance can result in significant financial burdens and may even result in criminal tax evasion charges. 

The Voluntary Disclosures Program offers financial incentives and protection from criminal prosecution for compliant taxpayers. Therefore, using a CPA specializing in CRA disputes is vital to ensure a successful voluntary disclosure. 

FAQs

The CRA can reassess a tax up to three years after the initial Notice of Assessment date. In suspected fraud or misrepresentation cases, the agency may go back even further.
The CRA charges a late-filing penalty of 5% of any balance owed plus 1% of the balance due for each month your tax return is late, up to a maximum of 12 months.
Yes, you should consent to the disclosure of tax return information, but only to the person the information relates to, as specified under the Income Tax Act, the Excise Act, and the Excise Act 2001. The CRA securely protects all taxpayers’ information.
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