Voluntary Pre-disclosure discussion (VDP).
Read this article if you are behind filing your personal, business, GST/HST and any other reporting obligations?
The Voluntary Disclosures Program (VDP) gives you a second chance to correct a tax return you previously filed or to file a return that you should have filed. If you file a VDP application and it is accepted by the Canada Revenue Agency (CRA) you will have to pay the taxes owing, plus interest in part or in full. However, you would be eligible for relief from prosecution and, in some cases, from penalties that you would otherwise be required to pay.
To ensure fairness for Canadians, applications for relief from taxpayers who intentionally avoided their tax obligations will not get the same relief as those who want to correct an unintentional error. The CRA will also restrict participation in the VDP if it has already received information on a taxpayer’s (or a related taxpayer’s) potential involvement in tax non-compliance; for example, a leak of offshore financial information, or other information that names the taxpayer.
You can apply to the VDP to correct errors or omissions in your tax filings through two streams, depending on the type of disclosure you want to make.
Replacement of “no-names” disclosure method by a new pre-disclosure discussion service:
As of March 1, 2018, the old process for taxpayers and authorized representatives to make disclosures on a no-names basis has been eliminated. Under the new “pre-disclosure discussion” service, taxpayers or their authorized representatives can have a conversation with a CRA official on an anonymous basis, but that discussion does not constitute acceptance into the VDP.
You can use the pre-disclosure discussion service to participate in initial discussions about your income situation on an anonymous basis and get an understanding about the VDP process. The pre disclosure discussion will help you become informed with good understanding of the consequences of not updating your income tax matters in order to meet your CRA obligations, and the relief available under the VDP.
Pre-disclosure discussions with a CRA official are informal, non-binding, and you do not need to reveal your identity. These discussions do not mean acceptance into the VDP and have no impact on CRA’s ability to audit, penalize, or refer a case for criminal prosecution.
The new VDP applications relating to late and non-filed income tax disclosures fall into one of two programs:
1- The General Program
2- The Limited Program.
The determination of which track an application will be processed under will be made by the CRA VDP officer on a case-by-case basis.
In order to determining if a disclosure will be processed under the General or Limited Program. the CRA may consider a number of factors, including but not limited to:
• dollar amounts involved
• the number of years of non-compliance; and
• the sophistication of the taxpayer/registrant.
1- VDP General Program
Applications accepted under General VDP program, will be eligible for penalty relief and partial interest relief. Under this program, taxpayers will not be charged penalties and will not be referred for criminal prosecution related to the information being disclosed. The CRA will provide partial interest relief for years preceding the three most recent years of returns required to be filed. The General Program is aimed at taxpayers who want to correct unintentional errors. If your application is accepted into the General Program, you will not be charged penalties and will not be referred for criminal prosecution related to the information disclosed.
Through the General Program, you may be granted partial relief of interest for assessments for the years preceding the three most recent years of returns that must be filed. Generally, this interest relief will be a reduction of 50% of the applicable interest rate that applies for those years. Full interest charges will be assessed for the three most recent years of returns required to be filed.
2- VDP Limited Program
The Limited Program limits the level of relief for taxpayers who intentionally avoided their tax obligations. If your application is accepted into the Limited Program, you will not be referred for criminal prosecution related to the information disclosed and you will not be charged gross negligence penalties. However, you will be charged other penalties as applicable.
No interest relief will be provided for applications processed under the Limited Program.
The following factors may be considered in determining if an application is accepted into the Limited Program:
• efforts were made to avoid detection through the use of offshore vehicles or other means
• the dollar amounts involved
• the number of years of non-compliance
• the sophistication of the taxpayer
• if the disclosure is made after an official CRA statement regarding its intended specific focus of compliance (for example, the launch of a compliance project or campaign) or following broad-based CRA correspondence (for example, a letter issued to taxpayers involved in a particular sector about a compliance issue)
The existence of a single factor will not necessarily mean that you are eligible only for the Limited Program. For example, a sophisticated taxpayer may still correct a reasonable error through the General Program.
This is a “Limited Program”, it applies to taxpayers who have intentionally avoided their tax obligations. See the December 15, 2017 news release. The new Limited Program. The Limited Program provides limited relief for applications that disclose non-compliance where the facts suggest that there is an element of intentional conduct on the part of the taxpayer or a closely related party.
Under the Limited Program, taxpayers will not be referred for criminal prosecution with respect to the disclosure and will not be charged gross negligence penalties. However, they will be charged other penalties and interest as applicable.
Mandatory waiver of rights of objection and appeal: Under the Limited Program, participants will have to sign a waiver of their right to object and appeal in relation to the specific issue disclosed.
In other cases, the General Program would generally apply.
VDP Applications
You can voluntarily correct inaccurate, incomplete, or unreported information, and do so without penalties or prosecution, provided that a valid disclosure is made to Canada Revenue Agency (CRA).
Disclosures can be made for to resolves issues such as:
– Income Tax and related reporting schedules such as T1135
– Goods and Services Tax/Harmonized Sales Tax (GST/HST)
– Charges under the Softwood Lumber Products Export Charge Act, 2006
– Air Travellers Security Charge Act
A valid VD-voluntary disclosure must meet the following conditions:
– Must be voluntary
– Must be complete
– Must involve the application or potential application of a penalty
– Must include information that is more than one year overdue.
– Must include payment of the estimated taxes owing.
When a taxpayer does not have the ability to make payment at the time of filing the VDP application, they may request to be considered for a payment arrangement.
A disclosure will not be considered a voluntary disclosure if the taxpayer is aware that CRA is about to do an investigation regarding the information to be disclosed, or if CRA has already contacted the taxpayer with a request for information that would uncover the information to be disclosed.
If CRA accepts the disclosure as valid, taxes and interest will still be payable.
How to make a Voluntary Disclosure
Form RC199, Taxpayer Agreement – Voluntary Disclosures Program, should be completed. It is important to use this form. The form can be submitted by the taxpayer, or by an authorized representative. The completed application can be sent either electronically, (My Account, My Business Account, or Represent a Client), or by mail. For more information see IC00-1R6 (link below).
Taxpayers who are unsure whether they want to proceed with a disclosure can participate in a pre-disclosure discussion on a no-name (anonymous) basis, but this does not apply to applications which would be done under the Limited Program. This allows discussions with a VDP officer which are non-binding and general in nature, without revealing the identity of the taxpayer. Using this method, the VDP officer can confirm that there is nothing in the information provided that would immediately disqualify the taxpayer from further consideration under the VDP. However, a final determination cannot be made until the identity of the taxpayer is known and all facts related to the 4 validity conditions have been verified.
A second review may be requested by a taxpayer if they disagree with a VDP decision, and an application for a judicial review can be made. If the VDP results in an assessment or reassessment with which the taxpayer disagrees, a Notice of Objection can be filed.