Published: 18 July 2006

I was recently contacted by an individual who has lived in Canada for several years but had not reported all of his income when filing his Canadian tax returns. His situation is one that is more common than one might think. Canada has a self-assessment tax system — we file our annual income tax returns, and the Canada Revenue Agency (CRA) assesses them and forwards us a bill for taxes due or gives us a refund of taxes paid, on the assumption that the returns are complete and correct.

Sometimes, through a honest mistake or a willful omission, income fails to be reported. If the CRA notices the omission, the government may automatically adjust for the missed income and just send you a bill for the additional taxes due. Or, if the omission is severe, an audit may ensue, resulting in you being billed for back taxes, interest and possibly even penalties and criminal prosecution. Oftentimes, it is better to “come clean” and confess your omission than it is to wait for the CRA to catch up with you.

If you come clean before the CRA notices the mistake, penalties and prosecution can be avoided. The confession is made via a voluntary disclosure, through your accountant or your lawyer. A voluntary disclosure action only applies if the CRA has not already started looking at you and then only if you come completely clean. The voluntary disclosure can apply to income taxes, GST, excise taxes and even payroll taxes.

Provisions exist to obtain relief on interest charges when circumstances beyond your control prevented you from filing on time and completely. More information can be obtained in the report IC00-1R, which can be viewed at www.loren.bc.ca.

In the case of the client who came to see me, the issue was one of an honest mistake. The client was unaware that income from property owned outside of Canada had to be reported on his Canadian tax return. It took some time to gather all the required information, but once obtained the filing of the disclosure, although complex, went smoothly. When I gave him my invoice and the final tax bill, he was not only happy that it was all over, but he was also mad at himself that he had waited so long to come clean.

This situation is not unique. Many Canadians are not certain what income is taxable, so you should always confirm with a professional accountant if you have any questions. Too many times I have had people say, “Oh, I don’t report that income,” yet if they had, they would not have broken the law and in some cases they may even have saved taxes!

The CRA is probably not as brutal as the tax agencies in the country you came from, so do not be afraid to come clean. No one ever likes paying more than their fair share of taxes, but not paying it all has severe consequences that may jeopardize your livelihood and position in Canada.

About the Author

This article was written by Gabrielle Loren -- a partner with Loren & Company, CGA's located in North Vancouver, BC and can be reached at gabrielle@loren.bc.ca, at 604-904-3807 or check out their website at www.loren.bc.ca

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tax, CRA, audit, penalty, prosecution, canada