In the recent case of Grewal v. Canada, the Canada Revenue Agency imposed gross negligence penalties after they had already accepted the taxpayer’s Voluntary Disclosure Application because a subsequent audit of one of the taxpayer’s companies in Panama revealed that various loans made during the tax years in question resulted in taxable benefits of more than $14 million. Although the taxpayer had included a description of the loans in his VDP application, he failed to disclose the taxable benefit. The CRA reassessed the taxpayer for both the taxable benefit arising from the loans and also for substantial gross negligence penalties.
In dismissing the taxpayer’s appeal, the Federal Court of Appeal stated:
“When a taxpayer makes use of the VDP, the taxpayer can still be audited and the taxpayer’s filings can still be assessed like those of any other taxpayer. Additional tax, interest, and penalties, arising from the failure to disclose income may be due.”
This is a reminder that if you apply for tax relief under the VDP, you must disclose everything to the CRA. If you don’t, they can come back years later and reassess you even though they had approved your VDP application.
Completing a VDP application can be very confusing for most people, particularly as to how detailed your disclosure must be. That’s why I advise people not to attempt it themselves but to always consult a qualified tax professional.
Click here to read the full Federal Court of Appeal judgement in Grewal v Canada