The Voluntary Disclosure Program and What to Do if You Failed to Declare Income to the Canada Revenue Agency

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Categories:Finance Taxes

If you have failed to declare income to the Canada Revenue Agency this is very serious and should be dealt with immediately. The consequences of failing to declare income to the CRA are very serious and range from financial consequences like penalties and interest all the way up to criminal prosecution in severe circumstances.

People fail to declare income many different ways, some intentional, some unintentional. These include failing to file tax returns, writing off expenses that you are not entitled to, declaring less income on a return than what you earned and more.

If you have undeclared income you can take steps to resolve the problem before you get into big trouble with the Canada Revenue Agency. Your options will depend on the status of your file with the Canada Revenue Agency. If the CRA has sent you notice of an audit or has sent you a request for information about a return you have filed, disclosing your income will not be voluntary so once you declare the income, the debt that you owe will be subject to interest and penalties. This shouldn’t detour you from coming clean with respect to your undeclared income because it is not illegal to have tax debt but it is illegal to have undeclared income.

If the CRA doesn’t yet know about your undeclared income you are in the very fortunate position to be able to declare your income and avoid interest, penalties and prosecution altogether. The Canada Revenue Agency offers a program to encourage taxpayers who have undeclared income to declare it voluntarily, this program is called the Voluntary Disclosure Program.

There are 4 simple criteria that must be met in order to qualify to declare income under the Voluntary Disclosure Program. The disclosure must involve undeclared income that is at least one year old, the disclosure must involve a potential penalty, the disclosure must be voluntary and the disclosure must be complete.

If the CRA has previously contacted you asking you to file a tax return or has requested information from you then you will not qualify under the Voluntary Disclosure Program. If you do not provide complete disclosure your application under the Voluntary Disclosure Program can be rejected or overturned in the future.

The process to make an application under the Voluntary Disclosure Program is one that should be administered by a tax professional and is as follows:

1. A letter is sent to the CRA that indicates a desire to make an application under the Voluntary Disclosure Program indicating the tax years and types of taxes in question.

2. The CRA will respond by assigning a VDP officer, a VDP number and advising you that you have 90 days to make disclosure.

3. You then have to file your past due returns or file amended returns within the 90 day timeline.
4. Once the returns have been filed the Canada Revenue Agency will then confirm if the application has been accepted under the Voluntary Disclosure Program.

Number 4 is the reason why it is crucial that a professional experienced in filing applications under the Voluntary Disclosure Program consults and prepares the application on your behalf. You want to ensure that you qualify and that the application is complete before moving forward because errors could result in the application being rejected once the income has been disclosed to the CRA and penalties and interest are being applied accordingly. Paul Mangion

Carmela Baca