If you are at least one year late in filing your income tax return, or an information return, or if you have made your filings but they were not complete or accurate, you may be eligible to participate in the Voluntary Disclosure Program (VDP). The VDP allows taxpayers to make disclosures to correct inaccurate or incomplete information, or to disclose information not previously reported. Provided all of the rules for a valid disclosure are followed, you will still have to pay any taxes or interest owing, but you may be able to avoid penalties and avoid prosecution with respect to the disclosure.
There are four conditions that are required in order to make a valid disclosure:
• Voluntary – A valid disclosure must be voluntary. In other words, you have to initiate the process. A disclosure is not considered voluntary if the Canada Revenue Agency (CRA) or any other authority has launched an audit, investigation or enforcement action (i.e., request or demand to file a missing tax return) with respect to the disclosure.
• Complete – You must provide full and accurate facts and documentation for all tax years or reporting periods concerned.
• Penalty – A disclosure must involve the application, or potential application of a penalty.
• One year past due – The disclosure must include information that is at least one year past due (unless the disclosure is made in conjunction with other disclosures of information that are at least one year past due).
The VDP can apply to disclosures relating to up to 10 preceding tax years. It can be initiated either on a named or a no-name basis. In order to make a disclosure under the VDP, you must complete Form RC199, “VDP Taxpayer Agreement.” This form requires that you disclose the reasons for the disclosure, the types and amounts of omissions or errors being disclosed and the types of income they relate to. If the amounts concerned are not initially known, an estimate should be provided on the form, with actual amounts to follow. The completed form must also include an explanation of how the disclosure meets the four (above-noted) conditions. According to the CRA’s Information Circular on voluntary disclosures, if the disclosure is initiated on a no-name basis, the identification information on the form can be left blank, other than the first three characters of the postal code, which determines which tax centre looks at the file. For individuals, age and gender is also required. This would appear to raise practical issues, as it is unclear how arrangements could be made for the CRA to contact the taxpayer to discuss the disclosure. It remains to be seen how this process will evolve.