The CRA voluntary disclosure program (VDP) only applies to the
last 10 years of tax issues such as unfiled tax returns or
unreported income or offshore assets not reported on a form T1135.
The reason is that CRA administers voluntary disclosure program
(VDP) and the ability to waive or cancel penalties and interest is
provided under subsection 220(3.1) of the Canadian Income Tax Act
(or the equivalent Section 281.1 of the Excise Tax Act (ETA) for
GST/HST). These provisions, commonly called fairness or taxpayer
relief applications, are only applicable to the most recent 10
years. CRA has no ability under the Tax Act to provide interest or
penalty relief for greater than a 10- year period. So what happens
if a Canadian taxpayer has more than 10 years of unfiled returns,
or has unreported income or unreported offshore assets, for more than 10
years? It a problem often faced by Canadian tax lawyers.
A taxpayer with more than ten years of tax problems will only be
provided with interest and penalty relief for the last 10 years.
However one of the important benefits of the CRA
voluntary disclosure program (VDP) is relief from possible tax
evasion prosecution. The protection from tax evasion charges, or
from charges for failure to file tax returns, is not dependent on
the taxpayer relief provisions of subsection 220(3.1) of the
Canadian Income Tax Act and is there still available and provided
by CRA where a taxpayer has more than 10 years of back tax
problems. This means that a taxpayer with more than 10 years of
back tax issues can still go to a Calgary tax lawyer to benefit
from the most important CRA voluntary disclosure program (VDP)
feature, no tax prosecution, and will also obtain interest and
penalty relief for the most recent 10 years.
Another common problem, especially with offshore bank accounts,
is that accounting records for all years are often not available to
the Canadian taxpayer. Offshore banks typically only keep records
for 7 years. Even domestic Canadian banks have limited back year
record keeping. When it comes to the taxpayers own financial
records such as business ledgers, those are often missing, either
due to moves, or destruction such as flooding, or plain
carelessness. What happens when a taxpayer wants to make a
voluntary disclosure for 15 years but only has 5 years of records?
A Canadian tax lawyer can make a no-names voluntary disclosure and
ask that the required returns that will be filed will be limited to
5 years. CRA policy on the issue of the number of years of returns
that have to be filed has changed over the years. The current CRA
policy is that if a CRA voluntary disclosure program (VDP)
application is submitted CRA will not ask for information that the
client cannot obtain. They will not commit to not asking for
additional years, but will state, if asked by an experienced
Canadian tax lawyer, that they don't expect Canadian taxpayers
to submit returns based on information that is not available.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Recently, I was contacted by a small business owner who had an unpleasant conversation with a CRA collections officer about an outstanding GST/HST assessment against his small company (of which he was a director).
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