Christen V CRA: Guidance From a Canadian Tax Lawyer on Procedural Fairness Regarding the Voluntary Disclosure Program

Posted: July 31, 2022

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A taxpayer filed judicial review application after her voluntary disclosure application was rejected. Ms. Christen (the “Taxpayer") applied for judicial review of the Canada Revenue Agency (CRA)’s decision to reject her voluntary disclosure application made on October 20, 2015, which was related to her assets located in Switzerland.

The CRA took the position that the voluntary disclosure program application couldn't be considered voluntary because it began a tax audit of the Taxpayer's Swiss assets in 2014. Still, the experienced Canadian tax litigation lawyer for the Taxpayer requested in her judicial review application that the CRA's decision be quashed, and the matter referred back to another CRA delegate for reconsideration.

In addition, the Taxpayer requested the Federal Court to treat the voluntary disclosure application as if it were valid. The Taxpayer also argued that recognizing the validity of the disclosure was the only reasonable outcome in the case, and there was also a reasonable apprehension of bias on the CRA's part.

After reviewing facts and case law, the Federal Court allowed the judicial application in part. The voluntary disclosure was referred back to the CRA for reconsideration by another delegate who had not been involved in the original case, and the review was to be conducted based on the court’s directions.

The Taxpayer requested the Federal Court to recognize the validity of the voluntary disclosure application

The Taxpayer set out the following issues in her judicial review application:

  1. The court should set aside the CRA’s decision that rejected her voluntary disclosure application; and
  2. The court should remit the matter to the assistant director of Voluntary Disclosure program and treat her application as valid.

Recognizing the validity of the voluntary disclosure is not the only reasonable outcome

The court reviewed the Taxpayer's argument and found the first central issue would be whether recognizing the validity of the disclosure was the only reasonable outcome for the Taxpayer. The Taxpayer submitted that there was no other outcome or reasonable alternative to recognizing the validity of the disclosure based on the common sense of fairness and the evidence.

Although the Federal Court agreed with the Taxpayer that the principles of fairness were reflected in the decision of a voluntary disclosure application, it also cautioned that the principle would require Voluntary Disclosure Program (VDP) officers to treat taxpayers and their voluntary disclosure requests in a consistent and transparent manner in light of the facts and evidence supporting their individual requests.

The Federal Court acknowledged that the law of judicial review does give a reviewing court exceptional power to substitute its finding for that of an administrative decision, and this type of indirect substitution is possible where the reviewing court finds that there is only one reasonable outcome and that remitting the case to the administrative decision-maker would serve no useful purpose.

However, based on the evidence and facts, the court found that the VDP did not exercise its powers under subsection 220(3.1) of the Income Tax Act of Canada in a manner inconsistent with the teaching of the Court of Appeal in Stemijon because the VDP officer indeed considered the relevant guidelines and could reach two reasonable conclusions. Therefore, the court ruled there was no single reasonable outcome to the case, and the Taxpayer failed to establish exceptional circumstances that warrant the court's indirect substitution of its own finding.

The reasonable apprehension of bias on the part of the CRA would vitiate its own decision regarding the voluntary disclosure

The court found that the VDP officer who made the first decision on the Taxpayer’s disclosure expressed his opinion as to the likely outcome of the second review of the disclosure by sending an email to the VDP officer who conducted the second-level review. In the court’s opinion, his involvement in this second review reduced the appearance of impartiality and independence of the second VDP officer, which gave rise to a reasonable apprehension of bias on the part of the CRA in connection with the decision of the disclosure. However, since the VDP officer who conducted the second-level review did not appear to have been influenced by the previous officer's email, the court found there was no bad faith or bias on the part of the VDP in connection with the decision of the Taxpayer's disclosure. In conclusion, the court did not find returning the case to the VDP for review would lead to an endless merry-go-around of judicial reviews but still instructed the VDP to deal with the Taxpayer’s file urgently and with priority.

Pro-Tax Tips – A voluntary disclosure must be voluntary

Although the Federal Court instructed the VDP to make another independent review the Taxpayer’s VDP application, the application might still be rejected because the disclosure was made after the CRA started auditing the Taxpayer. After all, the most important condition of a voluntary disclosure application is that it must be voluntary. Therefore, taxpayers should always act proactively when they have undisclosed income or assets in order to qualify for the VDP and consult with an experienced Canadian tax lawyer to maximize their chance of the voluntary disclosure application being accepted.


What is judicial review?

If you believe the CRA did not properly exercise its discretion in arriving at a decision, your experienced Canadian tax litigation lawyer can apply for judicial review of that decision to the Federal Court within 30 days of the date you received the CRA decision. However, you should generally ask the CRA for a second administrative review first before filing an application for judicial review with the Federal Court.

To apply for judicial review, your tax lawyer must send a completed Form 301, Notice of Application, with the appropriate filing fee to the registrar of the Federal Court. If it is determined that the CRA's discretion was not properly exercised, the Federal Court cannot generally change the CRA's decision, but it can refer the decision back to the CRA to be reconsidered by another delegated official.

What is the VDP?

The voluntary disclosure program (VDP) is designed as a second chance for taxpayers to come forward to fix errors or omissions in their tax filings before the CRA contacts them. In exchange, the taxpayer will receive certain reliefs such as prosecution relief, some penalty and partial interest relief under certain conditions. A voluntary disclosure application must meet five conditions to qualify.


"These articles provide information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."

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