Voluntary Disclosures – Should I Apply?

 

Should I use the VDP program offered by the CRA? Is this program right for me?

Should I use the VDP program offered by the CRA? Is this program right for me?

What is Voluntary Disclosures Program (VDP)?

The VDP is a Canada Revenue Agency (CRA) administered program which allows taxpayers to disclose or amend historical tax returns due to inaccuracy or unreported tax information. Under the program the CRA will not charge penalties or prosecute the taxpayer. The program also promises to grant partial interest relief if you are accepted under the program.

A disclosure must meet the following four conditions in order to qualify as a valid disclosure:

  1. Voluntary – The disclosure has to be voluntary. You cannot apply for this program once the CRA starts to audit your books and records. You will not qualify for this program once the CRA contacts you.
  2. Complete – The taxpayer must provide complete and accurate information for the period you are applying for.
  3. Penalty – There has to be situation where a penalty would apply to the taxpayer. This usually constitutes that there is taxes owing, otherwise the use of this program would be useless.
  4. One year past due – The disclosure has to be one year past due.

Should I Apply?

After briefly reviewing the details of the VDP program everything looks great on the surface. It had finally seemed like the CRA had implemented a program which would allow Canadians to correct past period errors without hefty penalties and interest.

Before we can fully start utilizing the program there are ambiguities that the taxpayer must understand. One of the most common misconceptions is that the CRA will not charge penalties or interest if you make a submission under this program.

In the VDP publication the CRA states that if the CRA accepts a disclosure as having met the conditions set out in this policy, it will be considered a valid disclosure and the taxpayer will not be charged penalties or prosecuted with respect to the disclosure. However, the CRA  contradicts itself and states that the Minister does not have to grant relief under the VDP provisions. Each request will be reviewed and decided on its own merit. If relief is denied or partly granted, the CRA will provide the taxpayer with an explanation of the reasons and factors for the decision.

When determining if interest and penalties should be charged, the CRA will assess on a case by case basis. This decision is most likely made by the CRA agent assessing the case.

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Business Transfers To Family Members


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According to reports published by CIBC it is expected that 30% or close to 310,000 Canadian business owners will sell or transfer ownership of their businesses in the next five years. The growing number of transfers has a significant impact on the Canadian economy and predecessor owners.

The lack of effective tax planning and knowledge  has resulted in predecessor owners paying significant income tax. This directly affects retirement savings and future well-being.

Transferring Among Family members

Business owners might have family succession allowing them to transfer their family business to the next generation. This allows business to be kept in the family and continue to operate much like they did in the years before. However, section 84.1 of the Income Tax Act (ITA) creates a significant economic loss for the business owner if they decide to keep the business within the family.

The transfer of a business to a family member is administered through section 84 .1 of the ITA, which is in place to prevent tax evasion. In most cases this section of the ITA deprives the predecessor owner of the capital gains exemption, which can save thousands in taxes. This would make selling the business to a third party much more attractive because you can realize the capital gains exemption. Resulting in lower income tax for the business owner.

Section 84.1 has overly complicated the succession planning process. It hinders the business owners if they decide to keep the business in the family.

Recommendation

Like many other, The Canadian Chamber of Commerce has proposed that the federal government modify the ITA section 84.1 to “to facilitate  business transfers to family members and make this type of transfer at least as advantageous as transfers involving  unrelated third parties through the following measures”.

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CRA – Business Tax Reminder’s App

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The App

When the Canada Revenue Agency (CRA) announced they were going to introduce a mobile app. I was very excited as it would allow me to access information on the go. I had expected they would add in an accountant component allowing me to access client records on the go (much like they did with My Business Account). However, the CRA introduced an app which works much like the calendar I use in Outlook.

The Mobile App allows users to add in their different CRA accounts and pop-up reminders of payments and due dates.

The Future of the APP

I would like to see the CRA connect the app to My Business Account allowing business owners to see information on the go. Read more

CRA’s Offshore Tax Informant Program

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The Program

Over the past year the Canada Revenue Agency (CRA) has implemented an ‘Offshore Tax Informant Program’ in hopes of fight international tax evasion. The CRA promises to compensate individuals who help catch tax evaders.

Program Success 

The Financial Post has reported  that this program has generated over 1,000 calls and has led to over 100 active cases. The success of this program banks on the CRA actually putting forth resources to investigate these cases which can take number of years.

Why Now?

Programs like this have been around for number of years,  the Internal Revenue Agency (IRS)  in the United States has had a similar programs since 2006. Other agencies such as the Securities and Exchange Commission (SEC) have similar programs as well. It was just a matter of time before the CRA followed suit.

With falling tax revenues and increasing deficits the governments are scrambling to find a solution. These program have been launched in hopes of  ensuring public confidence in the tax system and to increase tax revenues.

At the beginning of April 2013 the International Consortium of Investigative Journalists (ICIJ) released a report which indicated the issue of world tax evasion and included names of 450 Canadians. In the months following Gail Shea the National Revenue Minister committed $30 Million to find tax evaders. The report by ICIJ help shed the light on how much money was actually being stored offshore. Other governments around the world are also taking note of this problem.

In the Future

However despite having knowledge of the individuals that hold off shore bank accounts the CRA has yet to prosecute anyone. The investigations will be time consuming and complex, it could be years before we see any cases in court.

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Tax Free Savings Account and benefits

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What is a Tax Free Savings Accountant (TFSA)
 
The Tax-Free Savings Account (TFSA) is a flexible, registered, general-purpose savings vehicle that allows Canadians
to earn tax-free investment income to more easily meet lifetime savings needs. The TFSA complements existing
registered savings plans like the Registered Retirement Savings Plans (RRSP) and the Registered Education Savings
Plans (RESP).
TSFA Contribution limit:
The TFSA was started in 2009 and has an accumulating contribution limit. Any individual who is at least 18 can open a
TFSA. The contribution limit was $5,000 from 2009 through 2012, but it has been increased to $5,500 in 2013. Unused
TSFA contribution room is carried forward to future years. Your contribution room will be indicated in your notice of
assessment. An individual that has never made contributions to the TFSA (assuming the person was at least 18 years old on January 1, 2009) will have total contribution limit of $25,500 on January 1, 2013. This is how the limit is calculated:
 
TFSA contribution room on January 1st, 2012                                  $20,000.00
MINUS:  Contributions made in 2012                                                                      $0.00
Unused TFSA contribution room at the end of 2012                                        $20,000.00
PLUS:  Withdrawals made in 2012                                                                          $0.00
PLUS: TFSA dollar limit for 2013                                                                       $5,500.00
Subtotal of withdrawals plus TFSA dollar limit                                                 $5,500.00
TFSA contribution room on January 1st, 2013                                   $25,500.00