The Canadian tax law permits correction in tax filings under the Voluntary Disclosure Program (VPD). The specific law is subsection 220(3.1) of the Income Tax Act in application for income taxes in Canada. To have the relief available in the law the applicant must be a Canadian individual, partnership, corporate or trust taxpaying entity, application must be made within 10 years of the end of the year for which the taxpayer is seeking relief and such relief is available only in years after 2000. The purpose of the law is to permit, through self-reporting the correction of incomplete, incorrect in insufficiently disclosed information required by the Canada Revenue Agency. Such disclosure may permit penalty and possibly interest payment relief once the application under the VDP is complete. Each of the following four conditions must be fully met for the Canadian Revenue Agency (CRA) to consider the disclosure to be acceptable and valid. First, the disclosure is complete on its face, second, the disclosure is entirely voluntary, third, the information disclosed is at least one year past due in payment or if less than one year past due is in reference to a previously filed return containing information which is at minimum one year past due and fourth, the information disclosed carries the potential for application of a financial penalty. The most detailed provision regards the voluntary nature of the disclosure. It is possible, under certain circumstances to permit a voluntary disclosure even after an initial investigation or audit by the CRA has begun. When the audit or investigation is in its initial stages it is most likely that the disclosure will be accepted as voluntary. Additionally some certain events will still be considered voluntary according to CRA guidelines. The provisions are that any corporation which experiences ongoing CRA audits provides a disclosure separate from any audit protocol, outside of what the audit itself would reveal, the disclosure is of an issue separate from and lacking any connection to the specific topic of a recent audit a significant period of time has passed after a request for information, computer generated or otherwise, was sent to the taxpayer and no request for specific forms, documents, payments from the taxpayer by the CRA was received by the taxpayer with the burden of proving the absence of receipt upon the taxpayer making the claim.
Should the taxpayer be aware of enforcement actions either initiated or sent to commence by the CRA or any other authority situated to undertake such action and make a disclosure of information specifically covered within those proceedings such disclosure will be considered not voluntary. It is important to note the status of the proceedings by the government in evaluating the voluntary classification of the taxpayer disclosure. While it is intended to bring taxpayers into full compliance with the law with minimal extreme penalties it is essential that taxpayers recognize the disclosures must be complete and are generally available on a one time only basis. A full disclosure must include all accurate and relevant facts with documentation for all tax years and/or reporting periods in which there was prior inaccurate, unreported or incomplete information for all taxation and tax accounts related to the taxpayer. The taxpayer is expected to make payments for all amounts owed following tax amount calculations based upon the newly disclosed information. These amounts can include interest at the discretion of the CRA. If the payments are not made at the time of the disclosure the CRA voluntary disclosure officer may assign interest to begin to run at the time of disclosure. It is also within the discretion of the officer to assign the account to a CRA collections officer who can make arrangements with the taxpayer for payment of amounts owed to the CRA. Interest will accrue on balances owed until full and complete payment is reached.
There is a 90 day window from the effective date of a voluntary disclosure for the taxpayer to provide a complete disclosure to the CRA. Upon application by the taxpayer an extension of this 90 day period may be granted. This applies in the case of a “No Names” disclosure in which the taxpayer attempts to obtain information as to the effect of the disclosure without revealing its identity. The discussions between the taxpayer and a VDP officer are not final and binding although the officer may verbally affirm that the disclosure considered by the taxpayer does not invalidate applicability of the VDP and that the CRA will reassess the taxpayer’s appropriate years of taxation in light of a specific income amount. The Voluntary Disclosure Program can provide a taxpayer with a viable remedy for a tax mistake filing under Canadian law. However because of the specificity of the program and detailed nature of the provisions it is suggested that any taxpayer considering such a step obtain the advice of a tax financial professional.