VDP or Tax Amnesty: The Clean-up Tool for Tax Evasion
Posted by TaxSOS October 14 2013
Tagged Under : CRA VDP, Tax Amnesty, VDP, Voluntary Disclosure Program
An individual or a business organization cannot afford to think in terms of evading payment of taxes as it is deemed an illegal act. Some of the techniques of evasion include misrepresenting figures of earnings or profits and reporting a lesser amount. It also involves showing extra deductions which are disallowed by law when filing tax reports.?Tax evasion?would mean that a person who earns income does not want to report it to the Canada Revenue Agency (CRA). Businesses can also be charged as guilty of?tax evasion?if they intentionally report lesser amount of sales than made in actuality.
Another kind of?tax evasion?is on the sales taxes which are due to the government when any purchases are done which are outside of the jurisdiction of a particular business location. As per Section 239 of the Income Tax Act, the penalty for?tax evasion?could be at least fifty per cent of the total amount that has been evaded.
The Application of VDP or Tax Amnesty
Taxpayers are given?tax amnesty or VDP?by the Canada Revenue Agency when they are allowed to declare their income or amend any errors made in the previous filing of income tax. The government generally agrees to such corrections on the past returns and accepts a specified amount. There is a condition which waives off the penalties when the taxpayers disclose and claim?tax amnesty.
The CRA administers all cases of?tax amnesty?under the Voluntary Disclosure Program (VDP). An example can be given of a case where an individual has filed a tax return in the past and has failed to declare the accurate income. He or she has also declared more expenses than the actual entitlement. Such an individual can qualify for?tax amnesty?application under the?VDP.
Eligibility of VDP or Tax Amnesty
Certain conditions have to be met for a?VDP?application. The income that is being disclosed is pertaining to a declaration that is at least a year old and that declared income would have been subject to penalties. The disclosure is totally voluntary. It is advisable to go through these disclosures through a specialised?tax accountant.
It has to be taken into account that if the CRA contacts the defaulting taxpayer within a year prior to the disclosure, then the disclosure cannot be considered as voluntary. If the disclosure is not done on a complete basis to sort out all the discrepancies in the previous years, then the?tax amnesty?cannot be applied for.
A letter is sent to the CRA as the initial step in the?VDP?process, explaining the disclosure that is intended to be made for the type of tax return and also for the assessment periods in question. When the CRA accepts your application, it will acknowledge and assign a?VDP?number and assign a?VDP?officer to address your application request for?tax amnesty. The applicant will then have a period of ninety days to sort out all the corrections and amendments. At the end of that period, the CRA will issue the final confirmation that the?VDP?request has been approved for?tax amnesty.
Tax SOS, equiped with VDP knowledge and experiences, has helped many clients in achieving great results through VDP or Tax Amnesty program. Call us at 1-877-982-9767