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Canada’s Voluntary Disclosure Program for Taxpayers. Because mistakes happen.

The Voluntary Disclosure Program (VDP) provides a second chance for Canadians to correct their previously filed tax returns. However, the program maintains a goal of fairness and is not meant to reward individuals or corporations who have willfully avoided paying their fair share of taxes. It provides accepted applicants relief from prosecution, and depending on the situation, relief from penalties that would otherwise be applied. All taxes owing, plus some interest is required to be paid.

Mistakes do happen and the VDP is specifically designed to assist those who are looking to fix a mistake or correct an omission on a pro-active basis. 

Types of Relief

The Canada Revenue Agency (CRA) has outlined two categories in which VDP applicants may fall: General and Limited.

  • The General category is for applicants whose disclosure did not include intentional acts to deceive or hide rightfully owed taxes. These successful applicants will be able to correct their tax filings without facing prosecution, without having to pay a penalty and having some interest charges waived.
  • The Limited category is for individuals and corporations whose application contains an element of intent to not pay taxes owed. Those who fit into this category will only benefit from waived prosecution and some penalties.  The Limited category will not provide for a waiver for all penalties or a reduction of interest charged.

It is important to recognize that should one identify a mistake in their past tax filings and chooses not to report the mistake until a later date, the CRA may determine that from the mistake recognition date onwards there is an element of intent. As a result, these individuals may no longer fit into the General category, and instead be placed in the Limited category with fewer benefits. How the two categories are distinguished based on ‘intent’ is not always clear but generally, it is better to be proactive in coming forward earlier rather than later.

Benefits of the Program

The VDP allows taxpayers who have made an error or omission in their tax filings to avoid future prosecution should the CRA find the incorrect tax filings through an audit. Moreover, applicants can have certain penalties waived, and may be required to only pay a portion of the interest owed on the tax outstanding. Depending on the severity of the mistake, these benefits can be substantial making a disclosure through the program worthwhile.

Prior to a binding application, potential program applicants (or their representative) can speak to the CRA through a pre-disclosure discussion which allows individuals to gain insight into the benefits of the program while remaining anonymous.

Disadvantages of the Program

Recent amendments to the VDP have removed the anonymity aspect of the submitted application. As a result, those who apply may be carefully monitored for future mistakes in tax filings. Furthermore, acceptance into the VDP is not guaranteed. If the application is rejected, further review and processing by CRA could cause maximum penalties and interest charges to be administered. Finally, the VDP requires upfront payment of all owed taxes plus interest.

Should I use the Voluntary Disclosure Program?

For those taxpayers who have disclosed tax information that is not accurate or complete or who have missed reporting information to the CRA, proceeding to the pre-disclosure discussion can be worthwhile. Hearing the perspective of the CRA prior to providing identifying information can help potential applicants make an educated decision as to whether applying under the program is beneficial. Especially in cases where the mistake was unintentional, the program offers many more benefits that should be considered. For more information on this program and to discuss the best approach for your situation, please contact your IG Consultant.

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