How mistakes on your Canadian tax return can impact you
Tax season is almost here, and as you prepare to report your financial activities, not only do you need to know how to report your income accurately, but you also need to know what could happen if you make a mistake.
You also need to know how you can minimize your tax expense and how to plan for your financial future. These are just a few of the reasons why you should consult the best tax lawyers in Toronto and take advantage of expert planning and advice that pays off in multiples for years to come.
If you make a mistake on your tax return, the following is a summary of the potential impact.
What should I do when I realize I made a mistake on my return?
Once you’ve realized that you made a mistake on your tax return, the best course of action is to take note of it immediately to ensure that you remember to request a correction from the Canada Revenue Agency (CRA).
If you have already submitted your return, there is nothing you can do until you receive your Notice of Assessment. If this is a first-time mistake, the chances of being audited by the CRA are low.
You do not file a second return. Instead, wait for the Notice of Assessment and submit a request for a correction. While you can request changes to your returns for up to ten years in the past, only one change can be requested per submission, meaning that multiple changes would require a request to be submitted for every change needed.
How to request a change to your tax return
When you receive your Notice of Assessment, you can make a request to change your return by using your CRA MyAccount online portal or ReFile if you filed your return electronically. If you prefer to mail in a hard copy, you can complete a Form T1-ADJ, T1 Adjustment Request.
What happens if you make a mistake that will result in CRA penalty?
The Canada Revenue Agency has developed the Voluntary Disclosure Program (VDP) to help individuals rectify mistakes or omissions that could lead to penalties. The VDP allows taxpayers to correct intentional and unintentional inaccuracies on their previously filed tax returns or submit a tax return they did not file in a previous year. The VDP provides relief from criminal prosecution.
How Does Someone Get Accepted into the VDP?
To be eligible for the VDP, you must meet these conditions:
- The tax return must be filed voluntarily. This means that the CRA has not specifically requested it from you, and you have chosen to file it on your own.
- The return must be accurate to the best of your knowledge and must include all taxable income from all sources without any omissions.
- The return must be at least one year overdue.
- The return must show an outstanding tax liability, not a refund.
There are two tracks under the VDP for processing voluntary disclosures: the General Program and the Limited Program.
The General Program
The General Program of the VDP is designed for taxpayers who wish to voluntarily rectify errors they have made on their tax returns. As a result, this program is more forgiving in nature. If an application is approved under this track, the taxpayer may receive temporary and partial interest relief.
The Limited Program
The Limited Program is specifically designed for taxpayers who have intentionally avoided paying their tax obligations and is more restrictive in terms of the relief available to them. Taxpayers accepted into this program will not be subjected to criminal prosecution or gross negligence penalties, but they may face other penalties if applicable. Individuals in this track are not eligible for interest relief.
The CRA considers several factors when assessing whether a person should be referred to the Limited Program, including:
- Whether the applicant made efforts to evade detection.
- The amount of money involved.
- The duration of the tax evasion.
- The sophistication of the taxpayer.
It’s important to note that the presence of one or more of these factors does not necessarily disqualify the taxpayer from the program. If you’ve made a mistake on your return or are considering applying for the VDP, get advice from a tax lawyer first.
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