Income tax – What you need to know
Are you eligible?
Before you contact the Voluntary Disclosures Program (VDP) to correct your taxes, first make sure you are eligible for relief. You may be eligible if you:
- failed to fulfill your obligations under the Income Tax Act
- failed to report any taxable income you received
- claimed expenses on a tax return in error
- failed to remit source deductions
- failed to file information returns
- failed to report foreign-sourced income that is taxable in Canada
While special situations will be considered on a case-by-case basis, the following applications will typically not be considered under the VDP:
- applications related to income tax returns with no taxes owing or with refunds expected
- elections – there are provisions in the various Acts administered by the Canada Revenue Agency (CRA) which entitle you to choose or elect a specific tax treatment of certain transactions
- applications related to an advance pricing arrangement
- applications that depend on an agreement being made at the discretion of the Canadian competent authority under a provision of a tax treaty
- applications where a person is in receivership or has become bankrupt
- post-assessment requests for penalty and interest relief (these requests will be considered to be retroactive tax planning)
Be sure to include all CRA returns, forms, and schedules needed to correct the non-compliance with your application. Your Form RC199, Voluntary Disclosures Program (VDP) Application, or letter with the same information, must be signed by you and, if applicable, the representative submitting the application on your behalf.
Also, ensure that your application meets the following five conditions of a valid application. To be valid, your application must:
- be voluntary, which means you must submit your application before the CRA takes any enforcement action against you or anyone related to you on the same information disclosed in your application
- be complete, which means that you must include all relevant information and documentation (which includes all returns, forms, and schedules needed to correct the error or omission)
- involve the application of or the potential application of a penalty
- include information that is at least one year past due
- include payment of the estimated tax owing
Payment of the estimated tax owing
The CRA can only grant you relief from prosecution, or from paying penalties and interest. You still have to pay any taxes owing. Payment of the estimated taxes owing is required as a condition to qualify for the VDP.
If you do not have the ability to make payment at the time of filing a VDP application, you can ask to be considered for a payment arrangement on Form RC199, Voluntary Disclosures Program (VDP) Application. To learn more about your payment options, go to Make a Payment to the Canada Revenue Agency.
If you are paying by cheque and you are making more than one submission (i.e. individual and business) in the same application, include one cheque for each submission.
There are instances where a payment is not required. Examples include applications that are made up of only information returns (Form T1135, T1134, etc.) or returns with a capital loss carry forward.
Do not send cash by mail.
As the information you disclose in your application pertains to your tax affairs, the CRA has an obligation to review and assess the information you submit. As a result, even if CRA concludes that you are not eligible for relief under the VDP, the information disclosed could be referred to another CRA program area. This referral may result in an assessment or reassessment, the charging of penalties, and the initiation of an investigation and subsequent prosecution. Additionally, the CRA can verify and may later audit any information for any tax year, not just those included in your application. If the CRA finds that you misrepresented the facts because of neglect, carelessness, willful default, or fraud, the CRA will cancel any relief granted as part of the VDP.
On March 1, 2018, the 'no-name' disclosure method under IC00-1R5 was replaced with the pre-disclosure discussion service. To have qualified for relief on a no-name disclosure basis under the VDP, the CRA would have had to receive your application, including your name, on or before February 28, 2018.
If you are unsure if you want to proceed with an application, you can use the pre-disclosure discussion service to participate in preliminary discussions about your situation on an anonymous basis to get insight into the VDP process, a better understanding of the implications of not updating your income tax affairs in order to meet your obligations, and the relief available under the VDP.
Pre-disclosure discussions with a CRA official are for your benefit; they are informal, non-binding, and may occur before your identity is revealed. These discussions do not constitute acceptance into the VDP and have no impact on CRA's ability to audit, penalize, or refer a case for criminal prosecution.
For complex technical reporting issues or questions, you will be referred to a CRA official in a specialized audit area to discuss your situation on an anonymous basis.
To speak with a CRA official, contact General Enquiries:
- Individuals (Canada and the United States): 1-800-959-8281
- Businesses (Canada and the United States): 1-800-959-5525
For all other telephone numbers, go to Telephone numbers – Canada Revenue Agency.
It is essential that your application contain all the necessary information and documentation when it is submitted.
In the exceptional case where an extension is granted to provide the necessary information and documentation, it is important that you reply by the due date provided. Applications where information and documentation is not received by the provided due date may be denied as incomplete.
In addition, if your application is denied as incomplete, due to the information not being submitted by the stipulated time frame, we will not consider a request for a second administrative review and we will deny a subsequent application for the same issue.
How many times can you apply?
If you submit a second application, it will normally only be considered if the circumstances surrounding the second application are both beyond your control and related to a different matter than the first application.
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