One of the ways for a taxpayer to become compliant with something that was amiss in the prior period(s) is the voluntary disclosure program. It allows the taxpayer to file the additional documentation required without the application of penalties. The tax liability and interest will still apply however potentially onerous penalties are avoided. The voluntary disclosure is an all-in kind of program where the taxpayer discloses the information and leaves it up to the Minister’s discretion to waive the penalties.
Common situations when a voluntary disclosure may be required:
-Failing to file T1135 form to disclose foreign investments over $100,000
-Failing to report a capital gain on sale of investments or real estate
-Failing to report income from offshore investments
What happens if the submission is not eligible?
The taxpayer handed over the documentation to assess the additional tax and for whatever reason is not eligible for relief. In that case, the taxpayer has handed over the loaded gun to the agency in whose capacity it is to apply tax, interest and penalties as well as begin collection efforts upon completion of the assessment. When applying under this program the taxpayer either has to be really certain that he or she qualifies or they could pursue a no-name disclosure.
A no-name disclosure does not specifically identify the taxpayer but still identifies the situation. It is basically a question asked of the Minister “if someone were to be in this situation and provided this documentation, would they be eligible to apply for the program”. The response would be limited to the facts disclosed. If there were additional information that was not provided in the no-name disclosure then the Minister is not bound by its original answer and could change its decision. There is also a time limit (90 days from the day of the mailing of the response) to submit the full disclosure if the taxpayer wishes to rely on the response provided. There are some facts required to be identified about the taxpayer so that if the voluntary disclosure is pursued, the response to the no-name disclosure could be matched with the subsequent submission of the full disclosure.
Overall a no-name disclosure is a good way to test the waters to ensure that once all of the information is provided, the taxpayer is eligible for the waiver of penalties.