Hi, I am Shilpa Mehta of Feldstein Family Law Group. Today I am discussing the Voluntary Disclosure Program (“VDP”)
Before I begin, I remind you that it is of the utmost importance that you discuss this program with your accountant. There are restrictions, time periods and calculations that require an expert. I will only highlight and advise you that a program exists and family lawyers need to be aware of the program and discuss it with their clients.
Canada Revenue Agency has a program called the Voluntary Disclosure Program. What this program offers is an opportunity for taxpayers to make disclosures to correct inaccurate or incomplete information, or to disclose information not previously reported.
There are a number of circumstances where the foregoing occurs however for today I am limiting my scope to the taxpayer who receives cash in his or her business.
The VDP promotes compliance with the tax laws and encourages taxpayers to come forward and fix omissions in their information to CRA. In most situations, taxpayers who make a valid disclosure will have to pay the taxes or charges plus interest without penalty or prosecution to which the taxpayer would otherwise be subject.
Each request will be reviewed and decided on its own merits. There are circumstances where the VDP relief will not be granted and I urge you to discuss these with your accountant.
This affects the family law client. If you are the taxpayer or the taxpayer’s spouse, the VDP will affect your equalization payment and your support.
A brief example: You are a gardener and for the past 3 years you have reported $20,000.00 income annually. You receive $18,000.00 approximately in cash income not reported to CRA. You now make a voluntary disclosure which encompasses the last 3 years. You separated from your spouse last month. You will owe to CRA for the unpaid taxes on approximately $54,000.00 of unreported income and interest on that amount if the Voluntary Disclosure is accepted without penalty. You will want that amount to be equalized and the debt will be listed on your sworn financial statement as a date of separation debt.
In addition, on a going forward basis, you will disclose to CRA and pay taxes on your full income of approximately $38,000.00 per year. If your spouse’s lawyer was hoping to have you pay child support on the $20,000 income and a gross up on the $18,000.00, they will now be restricted to the roughly $38,000.00. On the flip side, if the spouse was concerned that he/she could only receive support on the reported $20,000.00, they can now be relieved that they should receive support based on the $38,000.000 annually.
If I have confused you, not to worry, most people are unaware of this program. I urge you to get tax advice from your accountant, and should you require more information on how it impacts on the Family Law process, please contact our office for a consultation at (905) 581-7222.