The complexity of sales tax rules can lead to misunderstandings and errors in their application. As a result, errors in transaction accounting may occur in accounting systems, causing taxes to be reported incorrectly on tax returns. How can we correct this without incurring too many costs?
A number of corrective options are available, depending on the exact situation. However, some actions may be more costly than others.
In the event of an error in the amount of taxes to be collected on income, or in the amount of tax refunds claimed in excess, many will think of correcting the situation by filing an amended tax return using form FPZ-2500 ” Demande de modification d’une déclaration “, or form FP-2500.E for tax returns filed electronically. In fact, this option allows you to correct taxes that have been erroneously under-declared, or any other adjustment that would result in tax amounts having to be paid to Revenu Québec for one or more reporting periods. However, it is important to know that when processing a request to amend a return that revises the tax amounts giving rise to an amount payable, a penalty of up to 15%[1] will be applied to the net QST payable. In addition, Revenu Québec will automatically assess interest on the net GST and QST payable from the date these taxes should have been paid and when they are paid. Expensive… to regularize a situation that is often involuntary on your part!
As of March1, it is now possible to correct an error without affecting your finances too much. It is now possible to use the voluntary disclosure program if at least one reporting period has elapsed since the day on which the return should have been filed. Prior to the changes announced by the Government of Canada, a voluntary disclosure could only be made if the information was at least 1 year overdue. This meant that errors made in the current fiscal year could only be corrected with the amended tax return, resulting in significant financial impact through the imposition of penalties and interest.
Now, voluntary disclosure of GST/HST and QST will be an advantageous option, possible if the following conditions are met:
- Volunteer;
- Be complete ;
- Concerning the actual or potential imposition of a penalty or interest;
- Contain information that is provided at least one reporting period late.
It is important to note that disclosure will not be voluntary if you are under audit, examination or investigation by tax authorities. Furthermore, in the situation where there is already direct contact with a government employee for any reason related to non-compliance, such as unfiled tax returns, audit or collection issues, this would mean that a voluntary disclosure file could not be accepted.
Following an analysis of your situation, we will be able to confirm whether you are eligible for the voluntary tax disclosure program. We recommend that you consult one of our commodity tax specialists, who will be able to confirm your eligibility. Whenever possible, the main advantage of using the voluntary disclosure program is that you will benefit from a complete reduction in applicable penalties, as well as a 50% or 100% reduction in interest, depending on the case in question.
Please do not hesitate to contact our sales tax specialists if you have any questions about this item or if you need assistance with sales taxes.
[1] The penalty is applied progressively. A delay of 15 days or more incurs a penalty of 15%. Between 8 and 14 days late, the penalty would be 11%, and between 1 and 7 days, 7%.
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