My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Tuesday, May 24, 2011

Dealing with the Canada Revenue Agency- Part two

In part one of my blog, "Dealing with the Canada Revenue Agency", I discussed some of the more "confrontational" situations in which you may deal with the Canada Revenue Agency ("CRA"), including notices of reassessment, audits and notices of objection. In this second blog, I discuss the two main "relief" provisions available to taxpayers.

Taxpayer Relief Provisions

The taxpayer relief provisions, previously known as the fairness provisions, may provide relief from interest and penalties owing by taxpayers who because of circumstances beyond their control, were unable to meet their income tax obligations. The provisions are applicable for ten years back from the application date ( ie: a request filed on or after January 1, 2011, must deal with an issue related to a taxpayer's 2001 return or later).

The above link for the taxpayer relief provisions is very detailed and well laid out by the CRA, so I will not go into any further detail here, other than to say the following are situations where the provisions may be applied:

1. The CRA may waive or cancel penalties and/or interest when they result from circumstances beyond a taxpayer's control (ie: natural or human made disasters, illnesses, deaths, postal strikes etc);

2. The CRA may also waive or cancel penalties and/or interest when they result primarily from the actions of the CRA (ie: processing delays, errors in CRA publications, etc.); and
3. The CRA may also waive or cancel interest when taxpayers cannot pay amounts owing because of circumstances beyond their control (ie: loss of employment etc.)
Voluntary Disclosure Program.
The Voluntary Disclosures Program (VDP) allows taxpayers to come forward without fear of penalty or prosecution, as long as they have initiated the process. If you come forward after the CRA initiates contact, the VDP will be denied. The VDP may be utilized by taxpayers for issues as varied as not reporting foreign income, to coming forward to report cash transactions, to reporting omitted capital gains transactions. While this provision may require a substantial payment of past income taxes, it provides relief from penalties, criminal prosecution and as I have been witness to, stress relief.
While I am being slightly whimsical saying a VDP provides stress relief, I cannot understate how important that has been to a couple clients I have had in the past. Some people almost worry themselves "to death", unable to sleep and losing weight and making a VDP lifts an extreme weight from their shoulders.
A valid disclosure must meet four conditions:
  1. The disclosure must be volunatary.
  2. The disclosure must be complete
  3. The disclosure must involve the application or potential application of a penalty and
  4. The disclosure must generally include information that is more than one year overdue.
The CRA realizes many taxpayers are reticent about the VDP process and thereby offer a no-name filing option. Under this option, you can provide the CRA full disclosure of your situation without providing your name, the name of your company or other names that could be traced back to you; however, the details of the disclosure must be exact and complete. The CRA will then provide their opinion on the consequences of the VDP and whether it would be accepted. This opinion is not binding until you provide your true name, however, assuming the facts provided are complete, I have never seen the CRA renege.
The CRA has some discretion in VDP disclosures and depending upon the situation may reduce the related interest charges or not require some years to be filed where there are multiple year omissions. Any additional relief is a bonus- the fact the VDP removes any penalties and criminal prosecution is why taxpayers come forward in the first place.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.