Unreported income is being fought hard by the Canada Revenue Agency (CRA). The CRA wants taxpayers to report all their income sources. It does not matter whether you earn all your money from within Canada, outside of Canada or just online. Anything that should be disclosed as income need to be reported truthfully.
Although the taxation policy applied per situation can vary, the CRA will somehow make you pay the taxes you owe to the government. People have undeclared income for different reasons. Some are just naughty when it comes to paying government taxes while others are just not sure whether some items are taxable. It is therefore important to know the CRA’s interpretation of sources of income. You do have taxable earnings if you:
- Are employed and are earning a salary, wage and/or bonuses. If you are employed (or you were employed) and have pension withdraws, RRSP, fringe benefits, stock option perks, a low interest or a no-interest loan from your employer or employee allowances, the CRA wants you to report everything.
- Have a business and are making profits and interest income on your investment portfolio.
- You have income from property investments. This may include rental income from rented rooms in your home, a capital gain from the sale of shares in a corporation or sale of real property (with the exemption of your primary residence).
- Have income like dividends from sale of shares or from other types of investments.
There are also types of income that will not cause you tax problems if ever discovered by the CRA. This type of income can be legitimate undeclared income. It entails the following:-
- Proceeds from lottery or inheritance.
- Any amount paid to you in form of damages because of an accident you sustained innocently.
- Benefits from a life insurance policy.
- GST credit
- Benefits paid to you by Canada or a related jurisdiction due to disability or demise suffered because of war.
- Within RRSPs accounts, the benefits and pension plans and other related income do not become taxable until you begin to withdraw them. It is only when you decide to withdraw your earnings that they stop being undeclared income.
- Strike pay.
There is something you need to note though. Even as income from the above sources is not taxed, interest earned from invested monies must be reported to the CRA. It is only the initial benefit that is exempted from taxation. When it comes to the reporting of undeclared income, you have two ways. The selected option depends on when you earned or received the unreported income. The T1ADJ is the form you can fill and file if your unreported income is for the previous year. But you should expect that interest fees will accrue from the date you should have filed your income.
The Voluntary Disclosure Program method is used when the hidden income is older than twelve months. When using the VDP, the CRA expects you to be truthful and will charge you interest fees–these can be reduced via Taxpayer Relief though. However, you will not be taken to court for revealing your undeclared income. If you decide to have your interest amount reduced via the Taxpayer Relief application, the CRA might reduce or refuse to reduce. If they do not alter your interest, you may end up paying even higher interest amounts that would accrue during the Taxpayer Relief Application process.