Paying taxes is mandatory in Canada. The Canada Revenue Agency expects that you will file your tax return on time. In addition, the CRA wants you to prepare your tax return professionally to avoid omissions or false statements. If you have undeclared income, or previously submitted tax returns that had errors, the CRA gives you a second chance to correct your tax mistake. Voluntary disclosure CRA program is the solution you have to clean up your mess. The Voluntary Disclosures Program, or short for VDP, lets you come forward and straighten out your tax affairs without dire consequences.
Why use the voluntary disclosure CRA program
This program was designed for people who have undeclared income for the past few years. It was also created for people who are devoted to paying their taxes but who, unfortunately, submitted erroneous returns. So they may file a VDP to correct erroneous information or include information they might have skipped in their previous dealings with the Canada Revenue Authority.
How the VDP works
You need to file a valid Voluntary disclosure CRA application. Another option is to write and submit a letter to the CRA tax centers providing the disclosure details required by the CRA .
The acceptance of voluntary disclosure CRA is not guaranteed
It is important to file a voluntary disclosure if you fulfill all the requirements to avoid rejection. The disclosure must be voluntary and should never be filed after you become aware of the CRA’s action against you. Then there should be a penalty, the submitted information should be at least twelve months late and it should be complete. If a voluntary disclosure CRA submission fulfills all the above conditions it will be assessed. However there are circumstances under which you cannot get VDP relief. For instance, if your disclosures are related to bankruptcy returns they will not be accepted. The same case applies if your disclosures relate to income tax returns with no pending taxes or with expected refunds. There are also circumstances under which you may get your VDP approval easily. You may get it easy if you did not:
- File information returns,
- Submit source deductions for your employees,
- File taxable earnings you received,
- Comply with the applicable act,
- Report foreign-earned profits that are taxable in Canada,
- File your GST or HST rebates from a preceding reporting period and
- Leave alone ineligible expenses on your tax return.
There are cases where a voluntary disclosure CRA program can be used anonymously. However, the person making an anonymous disclosure must reveal the full identity of the taxpayer involved in three months time. The 90-day or three-month count will not begin until the person making an anonymous disclosure receives a letter from the CRA. If you have not revealed the identity of the taxpayer you sent a disclosure form for their file will automatically be closed. After you submit a disclosure form the CRA will in return send you an acknowledgement letter, informing you about the next steps to take.