The CRA Voluntary Disclosure Program is an excellent tool that taxpayers can use to come clean with the CRA without facing penalties and interest on penalties. The Voluntary Disclosure Program helps taxpayers that fall into three categories:
1) Have filed tax returns and failed to disclose income on them.
2) Have filed tax returns and erred, declaring expenses that they were not entitled to.
3) Have failed to file their tax returns at all.
The Voluntary Disclosure Program is an official process and there are a number of rules and requirements to qualify. Many taxpayers have made the mistake of trying to apply to the CRA under the Voluntary Disclosure Program only to learn that they did not qualify, not only altering the CRA to the tax non-compliance but also subjecting them to penalties and interest. This is a big mistake that can be avoided by working with representatives who have experience with the CRA Voluntary Disclosure Program.
There are 4 primary criteria to qualify under the CRA Voluntary Disclosure Program:
- First, the application must involve the disclosure of income that is at least one year old.
- Secondly, the application must involve disclosing information that would be subject to a penalty if it had been discovered.
- Third, the application must be complete and disclose any non-disclosure prior to the date of disclosure. This means that once you make the application, if the CRA discovers other information that you failed to disclose, you will no longer qualify and will be subject to interest and penalties.
- Fourth and by far most important, the disclosure must be voluntary. This means that if the Canada Revenue Agency has contacted you about your taxes, whether it is to collect money from you, to inquire about a tax return or to ask you to file; disclosure will not be considered voluntary.
If you have just read what you need to qualify under the Voluntary Disclosure Program and fear that you won’t qualify, this does not mean that you should not disclose undeclared income to the CRA or ignore your tax filings. This could get you into big trouble. Failing to file tax returns or disclose income to the CRA is tax evasion under the Income Tax Act; it is illegal and could subject you (in addition to penalties) to criminal prosecution.
If the CRA is aware that you have failed to disclose income or is requesting that you file late returns, there are a number of resources available to them to force compliance. These include notional assessments which involve estimating your income and sending you a bill for what they believe you owe them (this bill will include interest and penalties). This could also involve enforcement action like freezing a bank account, a property lien and/or a wage garnishment. If the CRA believes you may owe them money, they will come after you.
In the best case scenario, if you qualify under the CRA Voluntary Disclosure Program, the process takes about 6 months. If you don’t qualify, then you should work towards a strategy to become tax compliant because the problem certainly will not go away by itself.