Review old tax years for potential tax adjustments before it is too late.
To encourage taxpayers to come forward, Canada Revenue Agency will often waive the penalties associated with late filing your tax return, not including all of your income in your tax returns or claiming ineligible expenses if you make a voluntary disclosure. You will still be charged interest and will have to pay any tax owing, but you may be able to avoid significant penalty charges. To qualify you must meet a number of criteria:
- You must initiate the contact with Canada Revenue Agency. If the tax department contacts you first, the deal's off and you will likely be charged penalties.
- There must be sufficient and complete information for the years under question. You will need to provide to the tax department sufficient information to substantiate your income and expense numbers. You won't need to provide this information immediately. In fact, you should first contact Canada Revenue Agency and then work out a mutually acceptable time frame to provide them with the details.
- The CRA must be in a position to apply some type of penalty. As an example, the penalty may be a late filing or failure to file penalty. If a penalty does not apply, you cannot seek relief under the Voluntary Disclosures Program, you can however still disclose the information to the CRA and it will be handled through the normal processing procedures.
- The information being disclosed must be at least one year past due or less than one year past due where the disclosure is to correct a previously filed return. For example, assume you had not filed tax returns for the years 2004 to 2008, and on November 10, 2009 you filed all of these returns under the Voluntary Disclosures Program. Although the 2008 tax return is less than one year past due (it would have been due on April 30, 2009), the CRA will consider the 2008 return as part of the disclosure, assuming that all of the required conditions have been met. However, the 2008 tax return would not be considered under the Voluntary Disclosures Program if it were the only return being filed. In this circumstance, the 2008 tax return would be handled through the Canada Revenue Agency's normal processing procedures.
Make a voluntary disclosure and avoid penalty charges.
If you decide to make use of the Voluntary Disclosure Program, you must make a written submission outlining the relevant details using Form RC199, "Taxpayer Agreement" to initiate the process. If your submission is accepted, then you must pay the outstanding tax and interest amount or work out acceptable payment terms. Be aware that the tax department could go back and assess penalties if you renege on your part of the deal and don't pay your tax bill after you come forward.
When you approach the tax department, negotiate with them the number of years they would like you to go back.
Depending on how long you have not filed a tax return, they may agree to waive some old years just to bring you back into the system. This is not always negotiable. However, depending on your circumstances, it can represent a significant savings if you don't have to file for some of the outstanding years.
The voluntary disclosure rules can also apply for GST returns that have never been filed or that have been filed with incomplete information. Once again however, you must approach the tax department before they approach you.
Can Penalty and Interest Charges Be Reduced?
If you have been charged a penalty or interest, consider requesting to have the penalty and interest charges reversed.
Canada Revenue Agency will, on occasion, reverse these charges. However, you must provide them with an exceptional reason why you were unable to comply with the law, resulting in the assessing of penalties and interest. Canada Revenue Agency has cited the following examples of circumstances which may be acceptable in reversing penalties and interest, if these circumstances prevented a taxpayer from complying with the law:
- natural or human-made disasters such as a flood or a fire
- civil disturbances or disruptions in services such as a postal strike
- a serious illness or accident
- serious emotional or mental distress such as a death in the immediate family.
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