The Voluntary Disclosure Program Canada has been created to encourage taxpayers to disclose their unreported income voluntarily. The Voluntary Disclosure Program Canada offers an incentive to that taxpayer who discloses previous unreported income voluntarily that he or she will not be charged by criminal prosecution for tax evasion. There is a possibility that the taxpayer could also be absolved from civil penalties that could be imposed on him or her. Even the interest charges could be reduced if the disclosure by the taxpayer qualifies with four conditions set aside by the Voluntary Disclosure Program Canada.
The civil penalties and criminal prosecution can be avoided for people who take the first step in accordance with their legal responsibility and this is applicable as under the Customs Act, the Customs Tariff, the Income Tax Act and the Excise Tax Act. The condition is that the tax affairs and the disclosure have to be reported to the CRA before the Agency takes any action or investigative steps.
Taxpayers who want to take advantage of the Voluntary Disclosure Program Canada will end up paying mostly the tax amount that they owe along with interest charges but the penalties will be waived for them. The program also has made a provision for anonymous disclosure under the `No Name Policy’. This policy helps to protect the identity of the complying taxpayer. When a taxpayer wants to keep his or her identity concealed and confidential, he or she could go ahead with the disclosure and will avoid prosecution for a period of ninety days. The ninety day period will start from the effective disclosure date which is established by the date of a written voluntary disclosure submission with the receipt of a VDP on the Taxpayer Agreement Form from the tax services office of the CRA.
The four conditions that have to meet the standards of the Voluntary Disclosure Program Canada are:
- This disclosure has to be totally voluntary. Once the investigation started by the CRA, you cannot apply for voluntary disclosure.
- The disclosure has to be accurate and complete. The penalties that have been pardoned previously will apply in the current case also if the taxpayer discloses partial information or submits the information with errors.
- The disclosure has to involve a penalty. If there is no penalty, then you have to declare and file your returns in the normal procedure.
- Disclosure has to include information that is at least one year old.
There are three stages for the Voluntary Disclosure Program Canada:
- Initial Voluntary Disclosure Program Canada submission – A case has to be made with the Voluntary Disclosure Agreement Form to the CRA to support your position that the income which you have not declared previously should be accepted and that you should be protected from civil penalties and subsequent criminal prosecution.
- The second stage in the Voluntary Disclosure Program Canada comes about when your submission is rejected. You can the approach the Director of the CRA tax services office by taking professional help to request them to reconsider their decision to deny your initial submission. This is known as a request for administrative review and you can attach extra evidence and facts to support your case. It is important that the taxpayers’ application for the administrative review include all the relevant evidence and facts.
- The third stage in the Voluntary Disclosure Program Canada comes about when the request for administrative review by the taxpayer is also denied. You have to go to the Federal Court to dispute the logic behind CRA’s decisions. This is known as an application for judicial review.