If you or your small business owes back taxes and you’ve been looking for a way to resolve them without ending up in the poor house, keep an eye open for a fiscal pardon, also known as a "tax amnesty program," "tax pardon," or "voluntary disclosure." A fiscal pardon is a type of amnesty for people with unpaid, unfiled, or unreported taxes from previous years. Through a fiscal pardon, the Canada Revenue Agency gives individuals and corporations a chance to pay unreported or under-reported income or GST and to submit unfiled returns from previous years without fear of large fines or criminal penalties.
A fiscal pardon is all part of the CRA’s Voluntary Disclosures Program. In exchange for taxpayers voluntarily coming forth to pay back taxes, the CRA waives any tax penalties and often lowers the interest rates normally charged. To take advantage of this program, though, you must apply for it. Anyone can file for a voluntary disclosure — but if you need help, get it from a tax lawyer, not a tax accountant. Any information you share with your accountant is considered non-privileged, and the accountant may be compelled to testify against you. The accountant’s records can be seized and used as evidence against you in a criminal trial if the CRA wants to prosecute you.
Here are some other things about the VDP you should know:
- Fill out your application carefully, as most rejected applications are the result of incomplete information.
- You only get one chance; after one pardon, you’re expected to file future returns on time.
- If the CRA is already prosecuting you, you’re ineligIble to apply for the VDP.
Most small businesses have so many expenses during their first year or two that failing to file taxes doesn’t make sense and gets the business off to a bad start. The VDP makes it easy to make amends, however, so your business can thrive without the stress of owing the government money and the fear of being forced to liquidate.