Missed Tax Deadlines and Unreported Earnings? The CRA’s Voluntary Disclosure Program Can Help! 

Falling behind on tax filings is not uncommon. Many Canadians find themselves in this situation, and as more time elapses, the challenge of adhering to tax regulations grows. 

There are numerous reasons one might delay or miss a tax return, such as health issues, business challenges, or other life distractions. Regardless of the cause, it’s essential to remember that most individuals and all corporations are mandated to submit an income tax return. Additionally, businesses registered for HST need to adhere to specific filing frequencies. 

Neglecting to file a return is a breach of Canadian tax regulations. The Canada Revenue Agency (CRA) might perceive this as a deliberate tax evasion attempt. Even if you’re unable to settle your tax dues, it’s advisable to file your return and negotiate a payment plan with the CRA. This approach helps you sidestep the repercussions of non-filing, which can encompass: 

• Accumulated interest and penalties 
• Withholding of refunds and other benefits by the CRA 
• Increased audit likelihood 
• Potential legal actions 

Moreover, the CRA might send you a provisional Notice of Assessment (NOA) that could demand a higher tax payment than you’d typically owe. 

What if you’ve missed several tax returns or made errors in your filings? 

Scenario A: No Outstanding Taxes 

If you don’t owe any taxes and have merely missed your filings, you won’t face penalties or interest. However, the CRA might withhold your refunds and other benefits, like the Canada Child Tax benefit, HST credit, OTB, and Canada Working Income Tax Benefit. To rectify this, simply file the tax returns for the years you missed. 

Scenario B: Outstanding Taxes or Incorrect Filings 

For those who owe taxes or have submitted inaccurate returns, the CRA has an amnesty initiative. This program allows taxpayers to voluntarily disclose their errors and, in doing so, potentially avoid penalties, interest, and legal actions. 

Introducing the Voluntary Disclosures Program (VDP) 

The VDP permits taxpayers to submit any missed tax returns and disclose other inaccuracies, such as underreported income or ineligible expense claims. To be eligible for the VDP, you must: 

• Act voluntarily, reaching out to the CRA before they contact you 
• Provide complete and accurate disclosures 
• Address potential penalties or interest 
• Include information that’s at least a year overdue 
• Pay the estimated tax due 

The VDP is open to individuals, corporations, partnerships, trusts, and GST/HST-registered businesses. 

VDP Tracks 

The VDP has two processing tracks: general and limited. The track you qualify for depends on the nature of your error and other factors. 

• General Track: Offers relief from all penalties for years prior to the three most recent tax years and partial interest relief. 
• Limited Track: Provides protection against legal actions and gross negligence fees. However, other penalties and interest may still apply.