Canadian Tax Lawyer Analyzes Tax Voluntary Disclosure Programs Around The World – Part II: The Canadian Voluntary Disclosure Program

Posted: April 16, 2024

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This article series on the tax voluntary disclosure program includes 5 parts: Part I introduces the OECD framework and structures for voluntary disclosure programs around the world, providing a high-level overview; Part II delves into the voluntary disclosure program in Canada, examining the key elements of the program as well as its importance for Canadian taxpayers who are looking to correct their prior mistakes; and Parts III through V compares the voluntary disclosure program in Canada with similar programs in the United States of America, in the United Kingdom, and in countries within the European Union. This is Part II of the series, taking a closer look at the Voluntary Disclosure Program available in Canada.

Introduction: The Tax Voluntary Disclosure Program in Canada

The Voluntary Disclosure Program (VDP) is a policy of the Canada Revenue Agency, which allows non-compliant Canadian taxpayers to voluntarily disclose their prior non-compliance and to come back into the Canadian tax system, in exchange for penalty and interest relief and immunity from prosecution, if applicable. The relief will be granted on a case-by-case basis to taxpayers who are eligible for the program. Situations that may qualify a taxpayer for the VDP include:

  • Failure to file a tax return for a previous tax year;
  • Failure to report Canadian or foreign income received in prior years, such as income from the disposition of crypto currency;
  • Claim of ineligible expenses, deductions, or Input Tax Credits;
  • Claim of ineligible refunds or rebates;
  • Failure to remit employee source deductions and/or GST/HST collected;
  • Failure to file certain information returns, such as T1134 and T1135 forms or T3 trust returns; and
  • Prior submission of incorrect returns.

A voluntary-disclosure application in Canada can be submitted at any time of the year. However, whether the taxpayer is an individual, a corporation, or a trust, the taxpayer must meet the following conditions to qualify for relief via a VDP:

  • Voluntariness: the voluntary-disclosure application must be submitted prior to the CRA taking any enforcement actions against you or another taxpayer who is related to you.
  • Completeness: the application must include all relevant information and documentation and disclose all prior non-compliance.
  • Penalty: there must be a potential penalty related to the prior non-compliance.
  • Time: information related to the prior non-compliance must be at least 1 year or 1 reporting period past due.
  • Payment: your must include payment of the estimated tax owing, or a request for a payment arrangement, which is subject to CRA approval.

Normally, each taxpayer has only one opportunity to submit a voluntary-disclosure application. The CRA will only consider a second application from the same taxpayer, if the circumstances surrounding the second application are both beyond the taxpayer’s control and related to a different matter than the first application.

General Program, Limited Program, and Wash Transactions

The Canadian VDP applies to disclosures related to income tax, source deductions, excise tax and duties, and GST/HST, as well as some other charges under specific legislations. Voluntary-disclosure applications relating to income tax disclosures may fall into either the General or Limited Program. Other types of applications may fall under General Program, Limited Program, or the Wash Transactions Category. If a voluntary-disclosure application is accepted under any of the three tracks, the applicant will not be referred for criminal prosecution, with regards to the information disclosed in the application.

Each track also provides different relief and is subject to specific requirements. The most common track is the General Program, which was intended for Canadian taxpayers who come forward to correct unintentional errors. If a voluntary-disclosure application is accepted under the General Program, subject to the 10-year limitation period, there can be full penalty relief and partial interest relief. For more on the 10-year limitation period, you can read our article here: 10 Year Limitation Period For Collections Of Tax Debt By CRA. In addition, the taxpayer will not be referred for criminal prosecution, regarding the information disclosed in the application.

Under the Limited Program, there will be no interest relief provided for an accepted voluntary-disclosure application. The applicant is considered to have intentionally avoided his or her tax obligations but nevertheless comes forward to disclose the non-compliance voluntarily. The applicant will therefore not be charged gross negligence penalties (GNPs) but will be charged other penalties, as applicable. For example, the penalty for failing to file certain information returns is $25 per day, for up to 100 days. When the taxpayer failed to file an information return knowingly or under circumstances amounting to gross negligence, the penalty then increases to $500 per month for up to 24 months (maximum $12,000), less any penalties already levied. After 24 months, there are also additional penalties. As a result, if an application includes a late-filed information return and is accepted under the Limited Program, the acceptance will not waive the above-noted late-filing penalties.

The Wash Transactions Category accepts applications from suppliers who have failed to charge and collect GST/HST from a registrant but who is entitled to a full input tax credit. If an application is accepted in this track, the applicant may be eligible for full penalty and interest relief on the disclosed transactions. The possible full penalty and interest relief, under section 280 of the Excise Tax Act, is based on the recognition that, on occasion, an error in applying the tax does not result in any net revenue loss to the government.

Potential Results Of A Voluntary-Disclosure Application

If the CRA accepts a voluntary-disclosure application, then the CRA will process the submitted information and issue CRA tax assessments/reassessments accordingly. As mentioned above, relief will also be provided, depending under which track the application is accepted and whether the circumstances warrant the maximum relief. Additionally, with certain exceptions, if an application is accepted under the Limited Program, the taxpayer will be required to waive the rights to object and appeal in relation to the specific matter disclosed in the voluntary-disclosure application, and/or any specifically related assessment/reassessment of taxes.

If the CRA rejects a voluntary-disclosure application, a taxpayer can request a second administrative review, as there is no right of objection under the Income Tax Act or the Excise Tax Act to dispute a discretionary decision that denied relief, or allowed only partial relief. A second administrative review request asks the CRA to assign an independent VDP agent to conduct another review of the denied voluntary-disclosure application. During a second administrative review, the CRA VDP can approve or deny your application.

As a general rule, after a second administrative review, a taxpayer can then file a judicial review application, asking the Federal Court to review the CRA’s discretionary decision, pursuant to section 18.1 of the Federal Courts Act. The application must be submitted within 30 days from the date the decision was communicated to the taxpayer. However, the Federal Court does not revise a CRA decision. Rather, the Federal Court reviews the discretionary decision and determines if the discretion was properly exercised. If the Federal Court is of the view that the discretion was not properly exercised, then it will set aside the CRA decision and refer the request back to the CRA for reconsideration by another delegated official.

Pro Tips – The Ins and Outs Of The Tax Voluntary Disclosure Progra

The Canadian VDP provides an opportunity for taxpayers to come forward voluntarily to disclose their prior non-compliance. In exchange, the taxpayers may be provided with immunity from criminal prosecution and penalty and interest reliefs. However, a taxpayer is expected to stay compliant after a voluntary-disclosure application and in general, a taxpayer is only entitled to one voluntary-disclosure application. The taxpayer will also need to pay for any tax arrears that are applicable. A voluntary-disclosure application may also impact a taxpayer’s related persons, whether they are individuals, trusts, or corporations. If the non-compliance also concerns a third party, the application may also alert the CRA to start reviewing the third-party’s tax matters. Consequently, we generally recommend that voluntary-disclosure applications for a group of related persons or for those who are involved in the same non-compliance, should be prepared and submitted at the same time.

If you may be eligible for a Voluntary Disclosure Program in Canada, you should engage with one of our expert Canadian tax lawyers. In particular, if you have many years of non-compliance or have complicated tax matters, our expert Canadian tax lawyers can provide legal advice and assist you with your voluntary-disclosure application.


When Can I Submit A Voluntary-Disclosure Application?

A voluntary-disclosure application in Canada can be submitted any time of the year. However, the application must include disclosures that may result in penalties and information that are at least one year overdue. In addition, you should make sure that your application is voluntary and complete. If the CRA has taken actions or reviewed matters related to the disclosure, you may not be eligible to file a voluntary-disclosure application.

What Type Of Relief Will I Be Entitled To Via The VDP?

If a voluntary-disclosure application is accepted, then you will be provided with immunity from criminal prosecution, related to the information disclosed in the application. In addition, depending on which track your application was accepted under, you may be entitled to penalty and interest relief. The taxes that are otherwise payable, however, will not be waived or reduced.


This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.

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