The Voluntary Disclosure Program in Canada enables taxpayers to voluntarily disclose income to the Canada Revenue Agency. This income could be a result of unfiled tax returns, it could be income that you knew you earned but failed to include on an income tax filing, it could also be expenses you declared that reduced your income but that were not legitimate expenses.
Under the Voluntary Disclosure Program, a taxpayer can either make an application identifying themselves or make the application anonymously. If the applicant makes the application under the Voluntary Disclosure Program anonymously, they must disclose their postal code, sex and age.
There are four criteria that the taxpayer must satisfy under the Voluntary Disclosure Program:
- The disclosure must be voluntary. If the Canada Revenue Agency has recorded that they have written or called the taxpayer to request that they file a tax return, to audit the tax return in question, to question income as declared etc., disclosure will not be considered voluntary and the application will be rejected.
- The tax debt must be at least one year old. If the tax debt is less than one year old, it will not qualify under the Voluntary Disclosure Program.
- The tax debt must be subject to interest and penalties. If the declaration of the tax debt will not result in interest or penalties being assessed it will not qualify for the Voluntary Disclosure Program.
- Most importantly the disclosure must be complete. If you fail to include information or undeclared income from other tax years, the Canada Revenue Agency can reject your application under the Voluntary Disclosure Program.
It is not a good idea to make an application under the Voluntary Disclosure Program on your own or through an accountant alone. This is a formal process and if it is not handled correctly you could effectively alert the Canada Revenue Agency to the fact that you have undeclared income and once your application is rejected they can proceed to come after you.
The process begins with a letter being sent to the Canada Revenue Agency indicating the tax years in question and the types of taxes that will be declared. Once received, the Canada Revenue Agency will send a confirmation that acknowledges that the application has been filed, a VDP number will be assigned and a VDP officer will be assigned to the file. The taxpayer then has 90 days to either file the past due return or amend returns that contain non-disclosure.
If disclosure is not made within 90 days, the application will become invalid and you will not reap the benefit of relief from interest, penalty and/or prosecution. Only after the tax returns have been filed with the Canada Revenue Agency will they approve or deny the application under the Voluntary Disclosure Program.