Coming Clean with the Canada Revenue Agency
By Gabrielle Loren, CGA
An individual, who has lived in Canada for several years but had never reported all of his income when he filed his Canadian tax returns, recently contacted me. His situation is more common than one would think. Canada has a self-assessment tax system, that is, we file our annual income tax returns and, on the assumption that they are complete and correct, the Canada Revenue Agency (CRA) assesses the returns and forwards us a bill for taxes due or gives us a refund of taxes paid.
Sometimes, through an honest mistake or a willful omission, income fails to be reported. If the omission is noticed by CRA they 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 a criminal prosecution. Due to the latter, often times it is better to "come clean" and confess your omission than it is to wait for 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 initiated by you, through your accountant or lawyer. A voluntary disclosure action only applies if CRA has not already started looking at you and then only if you come completely clean and owe them money.
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 from CRA at voluntary disclosure.
In the case of the client that 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. The client had felt the burden on his conscience wondering if and when he would be caught, what would happen to him and his family – so much so that the relief of knowing that he had come clean was like a large weight coming off of his shoulders. 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 aware of what income they have to pay tax on. My best advice: When in doubt, check it out with a professional accountant. 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!
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 future.
Gabrielle Loren is a Certified General Accountant and partner with Loren & Company located in North Vancouver, B.C. She can be reached at (604) 904-3807 or at