How to file a missed tax return without getting penalized

This article looks at the Voluntary Disclosure Program and how it may soon be tightening its eligibility criteria.

Taxes are not something many people enjoy paying, but failing to file one's taxes can lead to significant penalties and interest. Fortunately, the Canada Revenue Agency (CRA) has a Voluntary Disclosure Program (VDP) that allows people who may have either failed to submit a previous return or made a mistake on a submitted one to rectify the error without being penalized. However, while the VDP has provided amnesty to many people over the years, proposed changes could soon see the criteria for the program tightened significantly.

What is the VDP?

The VDP gives people a second chance to bring their tax file with the CRA into good standing. For those who have failed to file their taxes or failed to declare income, the VDP allows them to do so without being charged the penalties that would otherwise result if such information was to be found out involuntarily (such as during a CRA audit). In some cases, charges may also be dropped and interest payments lowered. Under the VDP, some cases are eligible for full penalty relief while other cases are only granted partial relief.

How to apply

Applying for the VDP does not guarantee that penalties will be dropped. Ultimately, it is up to the CRA to decide whether to accept a VDP application. As Global News points out, that's why it is so important to apply for the VDP through a tax lawyer rather than through an accountant. Unlike with a lawyer, tax information shared with an accountant is not privileged meaning that it could be used by the CRA to deny a VDP application and pursue criminal charges.

The future of the VDP

The VDP has helped countless people and businesses get back into good standing with the CRA. However, the rules for the program are expected to change soon. As the Financial Post reports, proposed changes to the VDP include reducing the relief offered to those who fail to file their taxes properly, changing how interest relief is calculated, excluding applications that involve income from criminal proceedings, canceling a VDP application if it is later discovered that the application was deliberately left incomplete, excluding corporations with more than $250 million in revenue from making an application, and requiring applicants to pay their estimated taxes owing before being eligible for the program. Any changes that are approved will go into effect January 1, 2018.

Talking to a tax lawyer

As the above article shows, time may be running out for those who have tax problems to come clean to the CRA. Anybody who has failed to either file a tax return or declare income in the past should talk to an experienced tax lawyer as soon as possible. A tax lawyer can advise clients about whether they may qualify for penalty relief under the VDP and how they can go about applying for the program .