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Ask SRJ: What is the Voluntary Disclosure Program and how can it help personal tax filings?

Ask SRJ: What is the Voluntary Disclosure Program and how can it help personal tax filings?

This is the latest in our “Ask SRJ” series, where we answer questions to topics that are currently trending.

The Voluntary Disclosure Program (VDP) is set up by the Canada Revenue Agency (CRA), in order to give the taxpayers a means through which they could voluntarily disclose the errors or unreported tax issues that they have not previously provided in their tax returns.  Tax Accountants in Toronto and Mississauga are usually engaged to assist individuals in making filings under the Voluntary Disclosure Program.

This could relate to back-taxes, unfiled personal income tax returns, unfiled HST or sales tax returns or any unreported income and unreported foreign assets.  We also commonly see the voluntary disclosure for the foreign income reporting and verification statement (T1135).

In Canada, the tax system requires the taxpayers to self-report income correctly within the tax returns by the April 30th deadline under the law. The penalties and non-deductible interest are charged when tax errors or omissions are filed in previous tax returns.

Fortunately, with the introduction of the Voluntary Disclosure Program, the taxpayers have the possibility to obtain benefits from it when they meet the following conditions.

CONDITIONS

To qualify for the criteria as outlined for the Voluntary Disclosure Program (VDP), the taxpayer is required to meet the following conditions:

Voluntarily.
The disclosure is required to be voluntary, which indicates that it is not enforced by the CRA to request or investigate (e.g., audit or processing review).

Substantially complete.
When preparing a submission under the VDP, the taxpayer should collect all accurate information and document for all taxation years without errors and missing any relevant information.

Involve penalty provision.
If a submission is made under the Voluntary Disclosure Program, the tax payable is responsible to pay penalty but not interest, if VDP is accepted, when the tax return is submitted.  The penalty amount must be included with the submission. More than one year overdue. Only the tax filings more than one year overdue can use the VDP. Hence, the current year tax filings are not eligible for the program.

More than one year overdue.
Only the tax filings more than one year overdue can use the VDP. Hence, the current year tax filings are not eligible for the program.

When meeting the above qualifications, the taxpayer can obtain the following benefits from the VDP.

Ask SRJ: What is the Voluntary Disclosure Program and how can it help personal tax filings?

BENEFITS

Reduce penalty and interest.
If the Voluntary Disclosure Program is accepted by the CRA, it will be a valid disclosure that enables waiving or reducing the additional penalty charges on previously incorrect or unreported information, as well as the interest pertaining to the outstanding tax owing balance.

Reinstatement of benefits.
If the VDP includes some benefits such as tuition credits, child tax benefits and employment expenses that were unreported before, the previous year’s tax return will be reassessed. The available tax credits and carry forwards could benefit the taxpayer for a refund.

It is possible that the taxpayer can potentially take advantage of the Voluntary Disclosure Program in order to avoid the penalty and bring the potential benefits that are not claimed in the previous year’s return. It is important to contact  Toronto Accountants when making a submission under the Voluntary Disclosure Program.

PROCESS

When taxpayers become aware of their inaccurate or incomplete information, Form RC199, Voluntary Disclosure Tax Payer Agreement can be found on the CRA website. The taxpayers could mail or fax the completed form to the VDP, at the designated Tax Centre in which they had filed for previous returns.

The taxpayers can choose to make an anonymous disclosure that does not identify the name on the initial disclosure submission. It helps the taxpayers to communicate their situation with the VDP officers and gain a better understanding of the implications on a potential basis.

For those who use the “no-name” method, they are required to identify the taxpayer within 90 calendar days. The beginning of the 90-day period will be informed by the letter from CRA.

A letter of acknowledgement will be sent by the CRA after receiving the disclosure submission within two weeks, and upon providing additional information to complete the process. However, it does not mean the CRA approves the disclosure.

The CRA will review the disclosure when they obtain all needed information, and they will therefore decide whether to approve or deny the disclosure.

Regardless of whether the disclosure is accepted or refused, the CRA will send the Notice of (Re) Assessment regarding the information disclosed under the VDP.

Ask SRJ: What is the Voluntary Disclosure Program and how can it help personal tax filings?

WE CAN HELP

As mentioned earlier in this post you can file the voluntary disclosure in relation to back-taxes, unfiled personal income tax returns, unfiled HST or sales tax returns or any unreported income and unreported foreign assets.  We also commonly see the voluntary disclosure for the foreign income reporting and verification statement (T1135).

With abundant experience in providing tax advices to the client, we can help to deal with the Voluntary Disclosure Program for personal tax filers. SRJ Chartered Accountants who have offices in Mississauga and Toronto have assisted a large number individuals with the Voluntary Disclosure Program for back-taxes and unreported income. We also work virtually with our clients from all over Canada and globally. If you are interested in determining your eligibility for the Voluntary Disclosure Program please contact us directly by email or by calling our office (647-725-2537).