The Canadian Voluntary Disclosure Program is a tax amnesty program designed to allow both private citizens and businesses the ability to report irregularities and amend tax statements without penalty or face potential prosecution. The Voluntary Disclosure program has been in effect since May of 1991. The administrators of the program typically reserve this amnesty for those who voluntarily disclose their errors or those who can prove other extenuating circumstances. The administrators claim the program has been successful, citing 15,000 participants applying to the disclosure program in 2012, with an estimated recouping of $310 million in tax revenues. The Canadian Revenue Agency has an increasing number of tools at its disposal to discover and prosecute missing and erroneous tax filings. For example, the CRA has recently amended tax return forms to include more third-party information such as the names of spouses and sub-contractors. This information assists the agency in discovering unreported income. Also, the CRA is now allowed to require most online retail and auction sites to disclose their major traders and merchants, and has also been increasingly involved in shuttering traditional tax havens. The CRA has also established a simple, anonymous online form whereby citizens can report suspected tax evasion. Even death offers no escape from your tax woes: the CRA can and will enforce penalties against your estate after your passing, which will add complications to an already difficult time for your heirs. However, you should be aware that there is a 10-year limitation on the returns able to be reported to the amnesty program. Thus, it is truly to your and your heir’s advantage to take control of your situation and clear up any irregularities in your tax documents sooner rather than later.
There are a number of benefits to using the Voluntary Disclosure Program. First, applications can be made anonymously. Being accepted to the program means that there will be no prosecution for the past tax irregularities you have been granted amnesty for. Secondly, penalties are usually either greatly reduced or forgiven entirely. For example, the penalties for tax evasion are typically assessed at between 50% and 200% of the taxes evaded in addition to any prison sentence (which is not to exceed five years). Late tax filers typically see a 17% penalty (plus interest accrued) assessed to their tax bill, which can be greatly reduced once the filer has been accepted to the amnesty program. Applicants should be aware, however, that there are a number of criteria that must be met before they will be considered for the CRA’s amnesty program. Applicants must be applying for a tax year that is at least one year ago, the disclosure must involve a penalty, the disclosure must be voluntary, and the disclosure must be complete. The last two criteria are the most important. You must apply for amnesty before the CRA contacts you by phone or mail about the tax year in question. If they have contacted you, any application for amnesty you make is no longer considered voluntary and you will be rejected from the program. Any request for amnesty must be a complete accounting of your tax irregularities; the CRA will not accept piecemeal attempts to settle portions of missing tax filings.
There is a procedure that most solicitors recommend for taking advantage of the Canadian Voluntary Disclosure Program. First, and most important, do not file missing tax return paperwork before you have been accepted by the amnesty program. Once your information is in the government’s system, you are not eligible for the amnesty program, and you become subject to the full scope and penalty of the law. Next, retain a solicitor who specializes in tax law and is familiar with the Voluntary Disclosure Program. This step ensures that your request for amnesty will remain anonymous and that you are insulated from any legal repercussions should your application be denied. All requests for amnesty that are handled by a lawyer are covered by solicitor-client privilege (if you do choose to use an accountant, make sure that the accountant is also a lawyer, or else the principal of solicitor-client privilege will not apply and you could be exposed to the legal and prosecutorial ramifications listed above).