Written by Gwyneth James MBA CPA, CGA Senior Partner
We all make mistakes, but we don’t all get a chance to fix them before it’s too late. What if you suddenly realize that you made a mistake on your tax return?
The Canada Revenue Agency (CRA) has a method for taxpayers to correct a previous tax filing or reveal information not previously provided in a tax return. It is called the Voluntary Disclosure Program (VDP) and MAY result in protection from penalties and/or prosecution. You can submit a form RC199 or simply write a letter to the Shawinigan tax office. Even if CRA accepts your disclosure, however, you will have to pay any taxes owing plus interest.
There are four conditions you must meet before using the VDP:
1. Voluntary – you must apply before CRA has caught you
2. Complete and Accurate – if you leave out or lie about any information in your application, CRA may reinstate penalties or prosecute you
3. Penalty – there must be a penalty to be waived, otherwise just file as usual
4. One Year Overdue – in most cases the information being disclosed must be over one year old
With the aid of an accountant or tax lawyer it is possible to file an anonymous VDP application to determine whether CRA is likely to accept the disclosure. The actual named application must be submitted to CRA within 90 days and must be exactly as the facts were outlined in the anonymous disclosure.
The VDP can be used for income taxes (personal and business), payroll source deductions, GST/HST, foreign income, ineligible expenses, and information returns (for example, foreign property declarations).
As painful as this process may sound, it may well be worth the pain if you can sleep better at night.