“Forgetting” to declare some income can be tempting in our self-reporting tax system.
But being found out can be expensive – and possibly flag your returns for extra attention into the future.
Canada Revenue Agency has formidable powers to investigate a taxpayer’s affairs. Punishment can be harsh, always including interest on unpaid taxes, usually resulting in penalties and in major cases even imprisonment with the attendant publicity.
On the other hand, the Taxpayer Bill of Rights offers some protection against unreasonable measures and the CRA also has its Voluntary Disclosures Program which allows taxpayers to confess their sins and usually escape the penalties.
Undisclosed – but taxable – income can range from cash payments for work you have done or rental rooms/property you own, to income from overseas sources. Claiming ineligible expenses is another way to illegally reduce taxes.
But disgruntled former friends, personal or business partners, tenants and others can tip off the CRA. Computer matching programs can uncover undeclared income. And tax treaties with foreign countries allow their tax departments to exchange information with the CRA.
The VDP sets conditions. For example, you must apply before the CRA has started to investigate you, the disclosure must be complete and you must pay what you owe.
“If you are unsure if you want to proceed with an application,” states the CRA, “you can use our pre-disclosure discussion service to participate in preliminary discussions about your situation on an anonymous basis to get insight into the VDP process, a better understanding of the risks involved in remaining non-compliant, and the relief available under the VDP.
“Pre-disclosure discussions with a CRA official are for your benefit; they are informal, non-binding, and may occur before your identity is revealed.
“These discussions do not constitute acceptance into the VDP and have no impact on CRA’s ability to audit, penalize, or refer a case for criminal prosecution.”
To speak with a CRA official phone 1-800-959-8281.
For more information, go to canada.ca/taxes-voluntary-disclosures.
Mike Grenby is a columnist and independent personal financial advisor; he'll answer questions in this column as space allows but cannot reply personally - email [email protected]
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