T1 adjustments and voluntary disclosures (VDP): what’s the difference?
“The VDP is typically for mistakes or omissions that would be likely to attract a penalty if identified by the Canada Revenue Agency,” says Dany Morin, media relations officer for the CRA (Shuttertsock/Dmitry Kalinovsky)
A T1 adjustment request is generally the path to take if you’ve filed a return but have forgotten to include information or you’ve made a mistake.
But if you have never filed a return or haven’t filed for a few years, you can apply to the Voluntary Disclosures Program. “The VDP is typically for mistakes or omissions that would be likely to attract a penalty if identified by the Canada Revenue Agency,” says Dany Morin, media relations officer for the CRA.
As Morin explains, the VDP promotes compliance with Canada’s tax laws by giving taxpayers a second chance to change a tax return they previously filed or to file a return that they should have filed. “If a taxpayer files a VDP application and it is accepted by the CRA, the taxpayer will have to pay the taxes owing, plus any applicable interest,” he says. “However, that taxpayer would be eligible for relief from prosecution and, in some cases, from penalties that the taxpayer would otherwise be required to pay.”
VDP applications are reviewed under one of two policies: Information Circular IC00-1R6 and GST/HST Memorandum 16-5.
According to these policies, in order to be eligible for relief all applications must:
- Be voluntary, which means taxpayers must submit their application before the CRA takes any enforcement action against them or anyone related to them on the same information disclosed in their application.
- Be complete, which means that taxpayers must include all relevant information and documentation (which includes all returns, forms, and schedules needed to correct the error or omission). This includes making sure you disclose all taxation years affected.
- As mentioned, involve the application or potential application of a penalty (penalty or interest for applications covered by the GST/HST Memorandum 16-5).
- Include information that is at least one year past the filing due date (or one reporting period past due for applications covered by the GST/HST Memorandum 16-5). This is one major element that makes it different from a T1 adjustment.
- Include payment of the estimated tax owing.
“Using the services of a tax adviser is recommended, especially where the amounts are large or involve multiple tax years” says Bruce Ball, vice-president of tax for CPA Canada.
Examples of the types of VDP application where relief is typically granted are available at paragraph 19 of the IC00-1R6 and paragraph 27 of the GST/HST Memorandum 16-5.