Does Voluntary Disclosure Apply to Unreported Cash or Side Income in Canada?
This answer covers Canadian federal tax law, which applies in every province.
Yes, it can, if the conditions are met. The CRA lists not reporting or under-reporting income as a situation that may be eligible for the Voluntary Disclosures Program, or VDP. The program lets you come forward to correct errors or omissions, and if your application is accepted the CRA may give penalty and interest relief and will not refer the disclosed matter for criminal prosecution. The tax itself must still be paid in full.
To qualify, the application must be voluntary and complete, must involve interest, penalties or both, must include information at least one year past the filing due date, and must include payment of the estimated tax owing or a request for a payment arrangement. You must include supporting documents for the affected years, which generally cover the most recent six years, or ten years for assets or income located outside Canada.
Relief depends on whether the CRA has already contacted you. Unprompted applications normally receive 100% penalty relief and 75% interest relief, while prompted ones normally receive up to 100% penalty relief and 25% interest relief. If an audit or investigation has already been initiated for that information, the disclosure is not voluntary. A lawyer or accountant can confirm which applies.
Key takeaways
- The CRA lists not reporting or under-reporting income as a situation that may be eligible for the Voluntary Disclosures Program.
- Even if relief is granted, the tax itself must still be paid in full.
- Income tax applications must include supporting documents for the affected years, and years with no errors or omissions need not be included.
- A disclosure is not voluntary if an audit or investigation has already been initiated for the disclosed information.