Tax amnesty is when the government allows a person to pay a defined amount of money in exchange for the forgiveness of a tax mistake or liability. This practice allows the taxpayer not to face any criminal charges for tax evasion. In Canada, the agency that is responsible for administering this practice is called the CRA, which stands for the Canada Revenue Agency. Furthermore, this is managed under a program called the Voluntary Disclosure Program. There are several instances where this program would apply. One instance is if someone filed a previous return and failed to declare income. Another instance where this program might apply is when someone has filed a return that declares more income than they were supposed to declare. If a taxpayer tried to reduce the amount of money that they owe by mistake, they would be able to use this program. Lastly, if it has been a while since the taxpayer has filed taxes and they are behind, they can use this program if the CRA has not requested them to file. There are some things that can be easily confused when trying to complete a tax amnesty application, so it is highly recommended that people apply through the Voluntary Disclosure program, or with a trained professional.
There are some rules to consider when applying for tax amnesty in Canada. The CRA requires that the income declared is more than a year old. They also require that the income a taxpayer declares would have been subject to a penalty. They also require that any disclosures must be voluntary and complete. This is where there is a lot of grey area. When the CRA says that it requires voluntary disclosure, this means the taxpayer must inform them of the tax issue before they have, in any way, contacted the taxpayer. This includes correspondence by phone and mail. It is not considered voluntary when they contact you first. When the CRA brings up the question of complete disclosure, they are asking that the taxpayer disclose all issues in all tax preparations to date. If you are reporting an issue from one tax year and have also had an issue in another tax year, you must report both issues or you will not be able to obtain tax amnesty. There are several tax professionals that can help you define the process of voluntary and complete disclosure. It is very important that taxpayers understand the rules of the program before applying.
There are several steps that must be taken to submit an application properly. The process of voluntary disclosure begins with the taxpayer sending a letter to the CRA. They must include the tax year, the disclosure that needs to be addressed, and the type of tax it is. If the CRA feels that your initial letter is enough to proceed with the case, they will give you an assignment for a VDP number. Once they give you the VDP number, they will assign you a CRA/VDP officer to handle the case. The next step is to get the returns in question prepared to submit. This process must be complete within 90 days. There are very strict guidelines for the time given to resubmit tax returns. When you file the return and 90 days pass, your CRA/VDP officer will contact you. They will give you the final confirmation that your application has been processed and approved. It is possible to contact a tax professional ahead of time to get an idea of whether applying for tax amnesty is possible. This will give a taxpayer the best information about what actions would be best for them. The most important thing to remember is that disclosure must be made before the CRA has requested a return.
Tax amnesty is not for all tax situations. If you do not qualify to participate in the program, the process of rectifying certain tax issues might be very much different from the process offered in the Voluntary Disclosure Program. This program is only for those who have not been contacted by the CRA. It is important to remember to follow the guidelines and requirements closely. When you find a discrepancy in one tax year, be certain that there are no other issues that need to be reported. The failure to do so will result in the denial of a tax amnesty application. Remember to follow the important steps included in submitting the application. To be sure that you can properly complete the application, allow enough time to prepare everything that is needed. There are only 90 days to make sure this happens, and it is important to meet this deadline. It is highly encouraged that taxpayers consult a professional to find out what the best option would be in their particular situation. There are no benefits in starting out this process unprepared. Many people and companies make unintended mistakes with taxes. Being proactive and using the resources of the tax amnesty and Voluntary Disclosure Program is a useful way to resolve accidental tax issues.