Last week I wrote an article about how the Canada Revenue Agency (“CRA”) used the “unnamed person” provisions of the Income Tax Act to compel retail stores like Rona and Home Depot to disclose the names and transaction details of their building contractor customers. The CRA then used that information to conduct audits on the stores’ customers to find contractors with unreported income and GST / HST.
This audit project of the construction industry is ongoing. When the CRA discovers that a building contractor has unfiled tax returns, or unreported income or GST /HST, not only do they assess or re-assess the contractor for the tax that is owed, but they also tack on interest and penalties , which can double or triple the debt. In some cases, they may even proceed with criminal prosecution for tax evasion. The penalty for tax evasion is up to 200% of the amount of tax that the contractor tried to evade and up to five years in prison. This is in addition to the civil penalties.
If you are a building contractor in this situation there is a way you can avoid penalties and prosecution, and get a reduction on the interest that the CRA charges on taxes owing. You can apply for a Tax Amnesty through the Voluntary Disclosure Program (“VDP”). But you have to apply BEFORE the CRA contacts you or else it is no longer considered “voluntary” .
If you are a building contractor with unreported income or GST/HST, you should come in from the cold NOW before the CRA audits you. If you wait until the CRA contacts you then you don’t qualify for a tax amnesty and it will end up costing you a lot more.
The Tax Amnesty / VDP rules changed a few years ago and it’s a lot more complicated than it used to be. For that reason, you should not try to do a VDP the application yourself, but should consult an experienced Tax Amnesty lawyer BEFORE the CRA gets to you.
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