Voluntary disclosure and the Canadian taxation system

Voluntary disclosure and the Canadian taxation system

13 March 2015

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Voluntary disclosure and the Canadian taxation system

Many clients approach our firm because they have inherited real estate in Canada and wish to sell it. The sale itself is subject to taxation in Canada, something clients resident in Germany do not always understand. Sometimes, this problem is compounded when the original owner of the property never made any tax filings in connection with the property during his lifetime or, when the heirs did not do so after death.

In cases where the original owner of the property did not make tax filings or the heirs did not make a final tax filing on behalf of the testator a sale of the property by the heirs cannot be completed unless all delinquent tax filings are made.

Revenue Canada, referred to as “CRA” has a voluntary disclosure system which is very similar to the German procedure. By making a voluntary disclosure in respect of income earned from real estate, the taxpayer or his heirs can avoid interest and penalties. The processing time for a voluntary disclosure application is nine to 12 months. It should be made BEFORE the regular tax filing.

In our experience, the need to make an application for voluntary disclosure arises most frequently in situations where our clients have allowed a friend or relative in Canada to generally look after things for them or make tax filings on their behalf. Often payments of real property taxes are mistaken for payments of Canadian income tax. This can result in serious tax issues.

Our advice is to work with qualified Canadian lawyers and tax professionals to ensure that penalties can be avoided.