What is a Voluntary Disclosure ?
The Canada Revenue Agency and Quebec Minister of Revenue have Voluntary Disclosure Programs (VDP) that allow taxpayers who have not fulfilled their tax obligations to voluntarily rectify their situation without facing penalties and potential legal prosecution.
These penalties can be substantial – often in excess of 50% and even 100% of the taxes owing. When a Voluntary Disclosure application is accepted, the taxpayer only pays the relevant taxes owed plus interest. These programs are not meant for all situations and have certain restrictions, and taxpayers should consult with a professional before initiating a Voluntary Disclosure.
Voluntary Disclosures – Conditions
Taxpayers are expected to remain compliant after their Voluntary Disclosure. In order for a Voluntary Disclosure to be valid, it must meet all of the following conditions:
- The disclosure is voluntary: It must be made before the taxpayer became aware of any compliance action taken against them.
- A penalty applies to the undisclosed income: If the taxpayer does not owe any taxes or have any penalties to pay, they may not qualify for the VDP.
- The information is at least one year overdue: The VDP is not for current filings, although it can include the current year if it is a part of a disclosure going back multiple years.
- The information is complete: The taxpayer must provide full and accurate facts and documentation for all taxation years or reporting periods where there was previously inaccurate, incomplete or unreported information relating to any and all tax accounts associated with the taxpayer.
Voluntary Disclosures – Applicability
When the conditions are met, Voluntary Disclosure Program relief may be granted in cases that:
- You did not fulfill your obligations under the applicable act;
- You did not report taxable income you received;
- You claimed ineligible expenses on your tax return;
- You did not remit your employees’ source deductions;
- You did not report an amount of GST/QST/HST;
- You did not file information returns; or
- You did not report foreign-sourced income that is taxable in Canada.
The Voluntary Disclosure Program does not accept disclosures relating to:
- Bankruptcy returns;
- Income tax returns with no taxes owing or with refunds expected;
- Elections;
- Advance pricing arrangements;
- Rollover provisions; and
- Post-assessment requests for penalty and interest relief.
Voluntary Disclosures – Assessment Methods
(Note – these are only general guidelines) While the Canada Revenue Agency and Revenu Québec programs have similar conditions to qualify, the respective agencies have very different approaches when processing Voluntary Disclosures.
- Canada Revenue Agency: Generally, the CRA will tax the unreported income going back 10 years plus interest.
- Revenu Québec: Normally, RQ will begin by taxing the taxpayer’s unreported opening capital (with the assumption that it was never reported when it was earned), and then tax any income going back 6 years. However, depending on the scenario other methods of calculating the taxes owing are accepted by RQ from time to time.
Voluntary Disclosures – Named versus Anonymous
When initiating a Voluntary Disclosure, the taxpayer can either:
- Provide full information including name and address at the time of initial contact or;
- Open the file on an anonymous basis. The taxpayer then has up to 90 calendar days to reveal their identity. When opening the file anonymously the taxpayer must provide all of the same information as above except for their name (but they must provide the first three digits of their postal code.)
There are pros and cons with both of the above options, which should be reviewed prior to initiating contact with the CRA and RQ.
For more information about the Canada Revenue Agency Voluntary Disclosure Program, click here. For more information about the Revenu Québec Voluntary Disclosure program, click here. For more information about the recent changes to Revenu Québec’s Voluntary Disclosure program, click here
Our office has processed a large number of voluntary disclosures with both the Canada Revenue Agency and the Quebec Minister of Revenue. We have developed systems to efficiently summarize financial information and create reports designed present information in a format acceptable to Voluntary Disclosure processing officers with both the Canada Revenue Agency and the Quebec Minister of Revenue.
Need Help ?
Contact us on a strictly confidential basis if you have questions regarding the VD program.
Our office is located in Montreal, Quebec, and we can assist with both Canadian and Quebec submissions.
Contact UHY Canada U.S. Tax Team
crossbordertax@uhyvictor.com
(514) 282-0067