Not sleeping at night?

If you find yourself tossing and turning at night because of unreported income or unfiled tax returns you may be losing sleep needlessly.

There are many reasons a person may fail to report income. They may have overlooked it, or perhaps they did not understand how to report it. This can happen with one time payments or other unusual amounts. Income from outside Canada is still normally taxable in Canada but because of the complexities that can come with reporting it, a person may fail to take the time to actually do so. In other cases a taxpayer may fail to file a return, or even a few years worth of returns because of external factors competing with their time and resources.

Given the sometimes substantial penalties that can result from failure to report income or file the necessary forms, taxpayers may have good reason to be concerned. The good news is there may be a way for you to come clean, pay the taxes owing, and not be subject to the penalties that might otherwise arise for failing to report income.

The Canada Revenue Agency (CRA) has a program known as the Voluntary Disclosures Program (VDP) which allows taxpayers to come forward and correct inaccurate or incomplete information or to disclose information they have not reported during previous dealings with the CRA, without penalty or prosecution. This is the same program that Mr. Mulroney used to come clean on the envelopes of cash he received from his friend Mr. Schreiber.

To qualify for the program the disclosure must be voluntary (if CRA had asked you to file the return or report the income you don’t qualify), complete, involve the possible application of penalties, and include information that is at least one year overdue. If application to the program is successful you will have to pay the taxes owing, plus interest, but will not be subject to penalties or prosecution for the amounts accepted as a valid disclosure.

In addition to income not reported and tax returns not filed, the VDP can also be used to come clean when mandatory reporting forms have been overlooked. For example, investors with assets outside Canada that exceed $100,000 in value may be required to file separate disclosure forms. The penalty for not filing the correct form can reach $2,500 for each year it is not filed. For a person who has overlooked this form, the VDP provides an avenue to come clean before the CRA has a chance to assess the penalty.

This is a powerful tool that numerous taxpayers have utilized since its inception. If you have unreported income or failed to file prior year tax returns it is worth a discussion with your advisor. Perhaps the Voluntary Disclosure Program is one that may benefit you.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.