The Truth about the CRA Voluntary Disclosure Program (VDP) that no one wants you to know

Before you waste time and money paying a tax solution company to walk you through the Canada Revenue Agency’s (CRA) Voluntary Disclosure Program (VDP), you might want to read this post and learn the facts they don’t want you to know.

In order to “qualify” for the Voluntary Disclosure Program, there are some important facts which must be taken into consideration first;

  1. The disclosure must be voluntary, and by voluntary, the CRA means that the business or taxpayer must not be aware of or have knowledge of an audit, investigation or other enforcement action set to be conducted by the CRA, or initiated by the CRA, with respect to the information being disclosed.
  2. The disclosure must be complete, meaning that all information must be disclosed and all the outstanding years must be filed in this application.
  3. The disclosure must involve the application of a penalty, such as, but not limited to, Late Filing Penalties (LFP), Late Remitting Penalties (LRP), and Failure to make installments, Gross Negligence Penalties.
  4. The disclosure must relate to information that is at least one year past due.

 

If you’ve fallen behind in filing, or failed to disclose or declare income – possibly from overseas / offshore investments / tax shelters / income properties, and the CRA has not previously tried to contact you for the returns, then the VDP might be for you.

The VDP allows taxpayers who make a valid disclosure under the Income Tax Act (ITA) to pay taxes owing plus interest, but avoid penalty and / or prosecution.

To make a valid voluntary disclosure, with the CRA means you would pay only the taxes you owe plus interest, and you may avoid penalties and potential prosecution on the information accepted under the program.

You can file a disclosure to correct inaccurate or incomplete information or to provide information you may have omitted in your previous dealings with the CRA.

To submit a disclosure, fill out and sign Form RC199, Voluntary Disclosures Program (VDP) Taxpayer Agreement, or write a letter giving the same information as on the form.

You can submit your Form RC199 or your equivalent letter to the CRA directly, using the Submit documents online service now available through My AccountMy Business Account and Represent a Client.

Once you have logged in to one of these portals, click on “Submit documents” on the left hand navigation menu, select “I do not have a case or reference number,” and then select “Make a voluntary disclosure.” From this point you will be prompted to upload your letter or Form RC199 as well as to provide a short file description.

At the end of the process, you will be given a reference number that you can use if you need to add more documents.

You can also send your disclosure by mail to one of the CRA’s tax centres.

 

The following are circumstances under which VDP relief may be granted:

  • you did not fulfill your obligations under the applicable act;
  • you did not report taxable income you received;
  • you claimed ineligible expenses on your tax return;
  • you did not remit your employees’ source deductions;
  • you did not report an amount of GST/HST (which may include undisclosed liabilities or improperly claimed refunds or rebates or unpaid tax or net tax from a previous reporting period);
  • you did not file information returns; or
  • you did not report foreign-sourced income that is taxable in Canada.

 

Disclosures relating to any of the following are not accepted under the VDP:

  • bankruptcy returns;
  • income tax returns with no taxes owing or with refunds expected;
  • elections;
  • advance pricing arrangements;
  • rollover provisions; and
  • post-assessment requests for penalty and interest relief.

 

You can make an anonymous disclosure, referred to as a “no-name” disclosure.  You will have 90 calendar days – beginning on the date the CRA notifies you that there are 90 days to provide the identity of the taxpayer involved, not 90-days from the date of initial disclosure.

The CRA will close the disclosure file without further contact if the identity is not provided before the 90th day.

Additionally, payments should begin as soon as the disclosure is made in order to reduce the amount of interest which is accruing on the file.

Any “taxpayer” can use the VDP, because the CRA considers a taxpayer to be an individual, an employer, a corporation, a partnership, a trust, a goods and services tax/harmonized sales tax (GST/HST) registrant/claimant, and a registered exporter of softwood lumber products. You can also have an authorized representative make a disclosure for you.

 

Time Limit:

There is no limit on how far back the VDP will request or review information. A disclosure must be complete and provide all the relevant information to allow the VDP officer to appropriately review and decide whether statute-barred years should be opened for reassessment. Income will be assessed in the year it is earned. If you have not filed for several years (that is, you are a non‑filer), you are expected to update all your tax years.

You are expected to keep your affairs up to date after using the VDP. You cannot make a second submission for the same issue for which you originally received the benefits of the program, however the CRA will consider a second disclosure in situations where the circumstances were beyond your control.

If this is the case, you will be required to give the CRA your name and tell them that you previously made a disclosure. If you do not reveal that you previously made a disclosure and this is uncovered by the CRA, your disclosure may be considered invalid and denied.

 

Additional information from the CRA

Form RC199, Voluntary Disclosures Program (VDP) Taxpayer Agreement

Form RC59, Business Consent

Form T1013, Authorizing or Cancelling a Representative

Information Circular IC00-1R4, Voluntary Disclosures Program

Making a Voluntary Disclosure on your Ontario Corporate Tax

 

Beyond the VDP is the opportunity to apply for Taxpayer Relief for full or partial relief of penalties and or interest, if applicable.

Save yourself the hassle of being subjected to someone else’s agenda.  Know your rights, and your options.  Know the truth.

 

For further information or to discuss the VDP and Taxpayer Relief provisions, send an email to us at info@intaxicating.ca

 

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Think the Canada Revenue Agency Treats Employees Differently? Think Again!

Former CRA employee fined and sentenced to 18-month conditional sentence for income tax evasion

Surrey, British Columbia.   The Canada Revenue Agency (CRA) announced today that Maria Victoria Banhaw of Burnaby, British Columbia, was sentenced on October 3, 2014 in Vancouver Provincial Court, after pleading guilty to one count of income tax evasion. Banhaw was fined $47,580, representing 75% of the total federal income tax evaded. She was also ordered to serve an 18-month conditional sentence, which includes 9 months of house arrest.

A CRA investigation determined that Banhaw, while employed at the CRA, prepared and filed personal income tax returns for herself, her husband and 34 family members and friends for the 2005 to 2009 tax years. On these 96 returns, Banhaw overstated the amount of Registered Retirement Savings Plan (RRSP) contributions in order to reduce taxable income and increase refund amounts payable. Banhaw’s family and friends were unaware that she made false claims on their returns. In total, Banhaw reported $389,417 in false RRSP contributions, resulting in $63,438 in taxes evaded.

The preceding information was obtained from the court records.

When taxpayers are convicted of income tax evasion, in addition to any fines, they must still repay the full amount of taxes owing, plus interest and any civil penalties that may be assessed by the CRA.  In addition, the court has the ability to fine them up to 200% of the taxes evaded and impose a jail term of up to five years.

If you have ever made a tax mistake or omission it is prudent to speak to us right away so that we can help you understand where you stand in the eyes of the CRA.  We will help you determine if you can handle it on your own – and set you up to do so, or recommend our services or the services of others to assist you through the process.

Ramping up for FATCA: Americans living in Canada

In case you have just starting to catch wind of FATCA and you are wondering if you are going to get caught up in its web, you might find this post very useful.  I have gone to the Internal Revenue service (IRS) website and pulled out their passages on American’s living in Canada and the expectations on how they will be handled under FATCA – coming globally January 1st, 2013.

The IRS has clearly stated that “All persons born in the United States are US citizens.  This is the case regardless of the tax or immigration status of a persons parents.  Furthermore, a person born outside the United States may also be a US citizen at birth if at least one parent is a US citizen and has lived in the United States for a period of time.”

This is the link to that information from the IRS website; http://www.irs.gov/businesses/small/international/article/0,,id=244868,00.html

If you are of the belief that as an American living in Canada that you do not need to file a US tax return because you do not generate any US source income in any way, that is also incorrect;  “The IRS reminds you to report your worldwide income on your US tax return and lists the possible consequences of hiding income overseas.”

More information on consequences of hiding income overseas (including Canada) in this link.  I have broken out some key facts below; http://www.irs.gov/businesses/article/0,,id=180946,00.html

As a US citizen living in Canada, the rules for filing income, estate and gift tax returns and for paying estimated tax are generally the same whether you are living in the US or not.

Not reporting income from foreign (including Canadian) sources may be a crime.  The IRS and its international partners (including the CRA) are pursuing those who hide income or assets offshore to evade taxes.  Specially trained IRS examiners focus on aggressive international tax planning, including the abusive use of entities and structures established in foreign jurisdictions.  The goal is to ensure US citizens and residents are accurately reporting their income and paying the correct tax. 

In addition to reporting your worldwide income, you must also report on your US tax return whether you have any foreign (Canadian or international) bank or investment accounts.  The Bank Secrecy Act requires you to file a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), if:

  • You have financial interest in, signature authority, or other authority over one or more accounts in a foreign country, and
  • The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.

More information on foreign financial account reporting requirements is in News Release FS-2007-15, Foreign Financial Accounts Reporting Requirements and Publication 4261, Do You have a Foreign Financial Account?

This link below outlines the filing expectations for US Citizens and resident aliens abroad.  You have until June 15th to file your US tax returns each year:

http://www.irs.gov/businesses/small/international/article/0,,id=97324,00.html

Most common question I have been asked:

“I am a U.S. citizen who moved to Canada to live and work there as a Canadian permanent resident, do I pay both U.S. and Canadian Taxes?

Answer: As a U. S. citizen living in Canada you:

Are required to file annual U.S. income tax returns and may be required to file certain information returns if applicable (e.g. Form 8891, U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans; Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts; TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR)).

You must report your worldwide income on your US income tax return if you meet the minimum income filing requirements for your filing status and age.

You must contact the Canadian Government to determine whether you must file a Canadian tax return and pay Canadian taxes – unless you are already filing tax returns here in Canada, then this step is obvious.

You may be able to elect to exclude some or all of your foreign earned income, if certain requirements are met, or to claim a foreign tax credit if Canadian income taxes are paid.

Behind on your filing to the IRS, are you?

The IRS began an open-ended offshore voluntary disclosure program (OVDP) in January 2012, on the heels of strong interest in the 2011 and 2009 programs, which may end at any time.  The intent of this program is to offer people with undisclosed income from offshore accounts another opportunity to get current with their US tax returns.  The 2012 OVDP has a higher penalty rate than the previous program but offers clear benefits to encourage taxpayers to disclose foreign accounts now rather than risk detection by the IRS and possible criminal prosecution.

Rumour has it that in September, the IRS will be releasing some new documents (besides the final regulations) aimed at helping Canadians file their US tax returns up to date – the IRS wants the most recent 3 years and 6 years of FBAR information from Canadians.

My thoughts here are that the IRS thinks all Americans living in Canada are not paying taxes so that anyone with over $1500 owing will still be penalized.  Once these US persons provide proof of their filing of Canadian tax returns at a higher rate, then the best the IRS can get from these residents if valid certifications and by adding them to the database, another potential income source to track.

FAQ Offshore voluntary disclosure program:

http://www.irs.gov/businesses/small/international/article/0,,id=256774,00.html

So if after all this you are unsure if you need to file you might want to seek out an accountant or lawyer which a strong US presence to advise you.  Remember if you are a US person and you let your bank know, they are required under FATCA to notify the IRS.

At the very least you should preapare your US tax returns for the previous 3 years and include the Canadian taxes paid under “foreign tax paid” to see where you fall under FATCA.  Then take them to an accountant with a strong knowledge of US tax in order for them to ensure the US return is correct and have them advise you on where they feel you fall under FATCA.  From there… It’s up to you.

There is no hiding from FATCA, so prepare for now and prepare for the future before the IRS gets to you first.