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The Canada Revenue Agency (“CRA”) understands that, occasionally, taxpayers discover they have reported inaccurate or incomplete information or have failed to disclose information on their return or have failed to file an information return. The CRA has the legislative authority to provide relief for valid disclosures; that authority is found in legislative provisions of the Income Tax Act (“ITA”), the Excise Tax Act (“ETA”) as well as several other acts administered by the CRA. Each of these acts provides the Minister of National Revenue (“Minister”) with discretionary authority to grant relief to taxpayers. In response to this discretionary authority, the CRA has developed a Voluntary Disclosure Program (“VDP”) which encourages taxpayers to voluntarily correct previous errors and omissions in their dealings with the CRA. Taxpayers who make valid disclosures under the VDP will be required to pay the taxes or charges plus any interest as determined by the CRA; however the taxpayer may avoid penalties or prosecution they may otherwise be subject to under the applicable act.
The Minister’s ability to grant relief is limited to any taxation year that ended within the previous 10 years before the calendar year in which the submission is filed. As noted above, the Minister has discretionary authority and, as a result, each request is reviewed and decided on its own merit.
The CRA requires that the disclosure meet four conditions. First, it is necessary that the disclosure be voluntary. A disclosure would not be considered voluntary if the taxpayer knew or should have known that the CRA or any other authority or administration had begun an audit, investigation or other enforcement action with respect to the information being disclosed. In addition, the disclosure would not be voluntary if action has been taken against a person associated with or related to the taxpayer or against a third party and that particular transaction is sufficiently related to the transaction being disclosed. It is also necessary that the information being disclosed would likely have been uncovered by the enforcement action.
The CRA requires that the disclosure be complete. The taxpayer must provide full and accurate facts and documentation for all taxation years or reporting periods where there was previously inaccurate, incomplete or unreported information.
A disclosure must involve the application, or potential application of a penalty.
The final condition to be met is that the information included in the disclosure be at least one year past due or that the disclosure includes information that is at least one year past due.
If it is determined that any of the four conditions are not met, the taxpayer will be advised, in writing, that the voluntary disclosure has been denied and the reasons why.
There is no right of objection under the acts administered by the CRA for a taxpayer to dispute a discretionary decision; however, if the taxpayer believes that the Minister has not exercised discretion in a fair and reasonable manner, the taxpayer may request in writing, that the Director of the Tax Services Office where the original decision was issued review and reconsider the original decision.
Where the taxpayer does not believe the Minister exercised discretion in a fair and reasonable manner, the taxpayer may make an application to the Federal Court for a judicial review of the Minister’s decision. The taxpayer must send a Notice of Application to the registrar of the Federal Court within 30 days from the date the taxpayer received notification from the Minister.
In the event that voluntary disclosure results in an assessment or reassessment to which the taxpayer disagrees, the taxpayer may file a Notice of Objection.
If you believe you may have inadvertently reported inaccurate or incomplete information, or have failed to disclose information or failed to file an information return; if you have any questions or concerns with respect to the VDP, please contact your local MNP tax specialist.
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