Canada Revenue Agency (CRA) knows that there are a significant number of people and entities in the population who have either deliberately or innocently not reported income, claimed artificial expenses, under-reported income, failed to remit payroll deductions taken from their employees and not remitted goods and services tax they hold in trust for the Crown.

I have spent nearly two decades representing clients who have omitted filing returns for a number of years, failed to report domestic as well as foreign income, allowed errors to continue to mount to a point where they are so scared to come forward to talk to anyone in the fear that the CRA may become aware of it.

In that fear they continue to agonize, hide and increase the degree of their guilt.

Not only are they suffering from it, their family members, especially the spouse, because the delinquent filer is procrastinating.

Once you have made up your mind to come out of hiding, there is no purpose in delaying as long as you are prepared to make a complete disclosure and to pay taxes.

I have not yet, in my experience ,encountered a case where the CRA has turned a voluntary disclosure request into a criminal investigation.

You should feel reasonably satisfied that the CRA honours its commitment, as long as you meet the criteria.

You should feel comfortable to share your information with any legal counsel because you are generally protected by a solicitor-client privilege.

After you have discussed your case with the counsel, and you decide not to go ahead with the disclosure, the legal counsel cannot be forced to disclose what you have shared under privilege.

I wrote my first column in 1990 on voluntary disclosure affecting the income tax regime, and since then have written many more columns. I have given examples of successful real life cases.

The volume of requests to CRA has increased so much that the CRA has more than doubled its staff to deal with applications.

One program the CRA offers i the Voluntary Disclosure Program (VDP) with respect to goods and services tax (GST) levied under the Excise Tax Act (Act).

Sections 261, 280, and 281 and Subsection 133(1) impose obligations on persons to report the GST they are required to collect and remit.

The sections also impose obligations to pay GST they have collected on behalf of the Crown over to the CRA.

The CRA is charged with the administration of the Income Tax Act as well as the Excise Tax Act (Act).

The CRA’s publication G500-3-4 discusses the VDP.

The release provides an overview of how the CRA administers, enforces, assesses, and penalizes taxpayers under the VDP.

The CRA’s goal is to encourage and foster voluntary compliance within the provisions of the Act and regulations which detail the circumstances to which the tax applies.

Under the system of voluntary compliance, persons who are registered are required to collect the taxes due, calculate, and report on the GST return, and remit the net taxes payable.

The tax filers are also required to maintain appropriate books and records and make such books and records available to the CRA to determine the amount of net tax due, or to prove the accuracy of any return.

Canadians operate on a self assessment system in which persons determine their own liability for tax or net tax and pay and remit income tax or GST accordingly.

The CRA states in their memorandum: “In order to verify compliance and enforce the provisions of the Act, auditors have been given the authority under the Act to inspect, audit or examine any documents, property or process of any person and to assess the tax, net tax, penalty or interest payable by the person or person’s representative as defined under Section 270.”

In accordance with Subsection 313(1) all amounts payable under Part IX of the Act are debts due to Her Majesty in Right of Canada.

The Act provides for a number of methods by which the amounts payable may be collected.

In order to be successful in a voluntary disclosure request, one needs to be extremely careful on how the application is handled.

It is often recommended that the delinquent filer use a tax lawyer to ensure confidentiality as well to receive proper direction under the law.

A disclosure under this program is considered voluntary when it is initiated by the registrant or claimant.

The purpose of the VDP is to encourage compliance by persons who have not filed their GST returns and paid their taxes. A disclosure which ensues from an audit or other enforcement action taken by the CRA will not be considered to be voluntary. You need to start before CRA has already started a compliance action against you of which you have the basic and not constructive knowledge.

A disclosure needs to be complete. A disclosure is considered complete if the registrant or the claimant discloses all known amounts and information not previously reported to the CRA with sufficient detail to enable verification of the disclosure.

There will be no point in coming forward and making a partial disclosure because you may not have satisfied the basic prerequisite of a full disclosure excepting minor omission or error.

If the CRA uncovers material omission from the amount and information disclosed, the CRA may at its discretion deem the total disclosure not to be voluntary, or the CRA may accept partial disclosure as voluntary and the rest not voluntary, and thus subjecting it to gross negligence penalties.

Although the CRA has publicly stated that they would not accept partial disclosure, the person making a disclosure can make that argument. The final decision would rest with the CRA.

In my experience, the CRA has been fairly reasonable by not treating the whole application as non voluntary because the taxpayer has missed out a trivial item.

A person wanting to make a voluntary disclosure must be prepared to pay all amounts for which the person is liable, and should also pay the penalty with interest provided for in Section 280, unless the disclosure meets VDP pre-requisites. If all conditions are met, the CRA will not apply civil penalties for gross negligence nor will it pursue criminal prosecution.

The CRA provides this commitment in its published document; no prosecution or penalties if someone comes forward and makes a voluntary disclosure.

Once a request to file under the VDP is filed with the CRA, you have 90 days to file all returns and supporting documentation. Subsection 281(1) provides that the minister may extend the time for the filing of a return.

In certain circumstances, the CRA states “The department may exercise at its discretion to encourage voluntary disclosures. In addition, Paragraph 281(2)(d) provides that any penalty imposed under Section 280 is payable only from the expiration of the extension period. However, interest imposed under Section 280 cannot be waived.”

If a person does not use the VDP option, and the CRA happens to track the person down, a person making the disclosure that is not voluntary may be subject to the imposition of an additional penalty or prosecution, as the circumstances warrant, as well as a penalty and interest imposed under Section 280, states the CRA.

—The author assumes no responsibility whatsoever for any information given above because the purpose of this column is not intended to provide professional advice including, without limitations, investment, financial, legal, accounting or tax advice. For specific advice to your situation please consult your professional advisor specializing in the area of your needs. Esmail Bharwani, MBA, MSc. (Entrepreneurial Studies), FCCA, FCGA, is a Barrister & Solicitor and associate with the firm of Miller Thomson LLP. He can be reached at 298-2418 or 288-3234, or e-mail ebharwani@millerthomson.ca. Esmail’s column appears weekly in the Calgary Real Estate News.