Back Tax Filing: Voluntary disclosure
The Genesis and Explanation of the Voluntary Disclosure Program
It is possible to obtain monetary relief from penalties and interest related to your taxes. In s. 220(3.1) of the Income Tax Act, the Minister of National Revenue is given the ability to waive or cancel all or any portion of any penalty or interest that would otherwise be payable by the taxpayer. However, this can only occur if the taxpayer applies to the Canada Revenue Agency and it is within 10 years of the taxation year in question. A similar provision exists in the Excise Tax Act (s. 281.1); however, this provision allows relief only from certain penalties (e.g. failure to file a return).
To help make the disclosure process easier, the Voluntary Disclosure Program was created by the Canada Revenue Agency in accordance with these aforementioned provisions. This program provides guidelines and criteria for taxpayers to follow in order to voluntarily come forward and correct previous non-compliance or omissions in their dealings with the CRA. Similar to the statutory provisions, the Minister’s ability to grant relief is limited to any taxation year (or fiscal period in the case of a partnership) that ended within the previous 10 years before the calendar year in which the submission is filed. By filing a valid disclosure, the taxpayer may have any penalties or interest associated with the information in the application waived or lessened, and the taxpayer may avoid criminal prosecution.
The Voluntary Disclosure program is not available for all non-compliance. Some issues that are excluded from the Program are rollovers or late-filing elections under the Income Tax Act. Additionally, taxpayers are typically allowed only one use of the Voluntary Disclosure program.
Four Conditions for a valid Voluntary Disclosure Submission
In order for your Voluntary Disclosure application to be valid, four conditions must be met:
- The taxpayer must voluntarily come forward with the submission. If the CRA brought it to the taxpayer’s attention that he or she incorrectly filed a return or the CRA commences an enforcement action (e.g. audit, investigation, information request regarding unfiled returns, etc.) against the taxpayer, the “voluntary” condition is not met.
- The disclosure must be complete. This requires that the disclosure provides full and accurate facts and documentation for all reporting periods where there was previously inaccurate, incomplete or unreported information relating to any and all tax accounts with which the taxpayer is associated. Minor errors or omission will not invalidate this requirement.
- A disclosure must involve a realized or potential penalty. The penalty type may be a late filing penalty, a failure to remit penalty, an instalment penalty, or a discretionary penalty, such as an omission penalty or a gross negligence penalty. In the event a penalty does not apply, the taxpayer cannot seek relief through the Voluntary Disclosure program. However, the disclosed information should still be submitted and it will be handled through the CRA’s normal processing procedures.
- The information in the disclosure must be more than one year out of date. This requirement exists because the Voluntary Disclosure program was not intended to allow for penalty avoidance for recently late-filed returns.
If any of the above conditions are not met, a submission will be deemed invalid.
Can Voluntary disclosure be a good option regarding your back tax filings? Tax Doctors Canada will help you ascertain the optimum solution for your back tax filing requirements. When dealing with the Canadian Revenue Agency for back taxes, it is extremely prudent that you have highly qualified experts representing and protecting you in your dealings with the CRA. Mistakes can be costly and penalties harsh. The accountants at Tax Doctors Canada have a proven track record of success with back tax filing issues. With Tax Doctors Canada on your side for your back tax filing needs, you can rest assured that you have the best in accounting expertise.
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