Cryptocurrency & Voluntary Disclosure

The CRA Voluntary Disclosure Program offers people who did not file their taxes accurately or at all in the last 10 years a chance to correct the information in exchange for one of two forms of tax relief. The Voluntary Disclosure Program offers General Relief or Limited Relief.

Limited Relief only applies to those who engaged in intentional non-compliance, and the benefits are restricted. They will not be prosecuted for non-compliance in reporting their taxes. Everyone else who is approved will get General Relief, which may also come with interest relief.

There have been major new developments in the way the CRA can collect information about crypto investors. Since March 2021, Coinsquare has been required to provide the CRA with information about any customer with accounts valued at more than $20,000 CAD. While 90% of Coinsquare customers are unaffected, the information has changed the game for the CRA when it seeks to audit taxpayers who conduct NFT or cryptocurrency transactions. The CRA also works with crypto exchanges to track transactions.

This has added urgency to filing a Voluntary Disclosure if you have unreported NFT or crypto income. In order to qualify for the Voluntary Disclosure Program, the CRA must not already know about the issue. Once a CRA crypto tax audit begins, it’s too late. Taxpayers may not even be aware that the CRA has already initiated an investigation into their transactions.

Once you discover you have unreported income, get in touch with a crypto tax lawyer immediately.

Canada relies on a self-assessed tax system, where taxpayers report their own income and calculate the amount they owe. It is your responsibility to report all of your sources of income, and there can be severe consequences if the CRA discovers that you omitted information or lied about your income.

When you apply to the Voluntary Disclosure Program, you have the opportunity to correct past mistakes. We can help you provide the CRA with the information they need to accept your application to the disclosure program and offer you tax relief.

Our crypto tax lawyers will advise you about what to expect when you begin the CRA Voluntary Disclosure Program. When you book a consultation with us, a crypto tax law firm can determine whether or not you are eligible and how likely you are to be accepted. If you proceed, we will help you fill out Form RC199 and all of the paperwork you need to apply to the CRA Voluntary Disclosure Program.

If you have unreported crypto income, you most likely owe crypto taxes. Unpaid taxes accumulate interest charges and late penalties, even when the CRA doesn’t know about them. By informing the CRA through the Voluntary Disclosure Program, you can receive relief on as much as half of the interest owed for the past 4 to 10 years. You can also avoid late penalties that would otherwise apply. The CRA also agrees not to pursue criminal prosecution for tax evasion against you.

Submissions to the Voluntary Disclosure Program must be voluntary and complete. By complete, the CRA means that you must provide a full and accurate report of all information relating to the disclosure program. While minor errors will not disqualify you, material errors and omissions could lead to the same penalties and prosecution that the VDP was designed to help you avoid.

If you have unreported NFT or cryptocurrency transactions that should have been reported on previous years’ tax returns, you can correct your past mistakes through the Voluntary Disclosure Program. However, you must also report any other undisclosed sources of income from those years. You will also have to be prepared to pay the full amount you owe from past transactions upfront.

Not all submissions to the Voluntary Disclosure Program are accepted. When the CRA reviews submissions to the Voluntary Disclosure Program, they look at five factors:

• Were efforts made to deliberately avoid detection?
• How much is owed?
• How many years was the taxpayer in non-compliance?
• What is the sophistication level of the taxpayer?
• Was the disclosure made after a CRA statement about its intended focus on compliance?

The fifth factor may be an issue if you are reporting NFT or crypto taxes and were a Coinsquare customer because of the CRA’s court order to gain access to customer information from the exchange.

In addition, you cannot file a Voluntary Disclosure beyond 10 years in the past. You will not be able to correct returns that are more than 10 years old.

If you are worried about whether the CRA will accept your submission to the Voluntary Disclosure Program, work with a Canadian tax lawyer with knowledge of crypto.

It’s easy to make a mistake when you’re filing your taxes. Many crypto traders do not get into cryptocurrency with a full understanding of the taxes they will have to pay. Just because you did not report income does not mean that the CRA will not find out about it. As cryptocurrency becomes more popular, the CRA is focusing auditing efforts on cryptocurrency traders. Combined with their ability to collect customer information from crypto exchanges, it is better to get ahead of the issue and resolve past tax mistakes before the CRA finds out.

Offshore income can and should also be included when you apply to the Voluntary Disclosure Program. If you have foreign income, including income from offshore crypto, there will be additional paperwork. Foreign income must be reported on Form T1135, which is used for reporting all foreign assets.

Our top tax lawyers will advise you on what to expect when you apply to the Voluntary Disclosure Program and help you prepare an application that the CRA will accept. Dealing with the CRA Voluntary Disclosure Program is far from simple, but our top tax lawyers have years of experience dealing with the CRA and submitting NFT or crypto voluntary disclosure applications.