Tax Amnesty - Voluntary Disclosure, A Way to Sleep at Night

Posted: June 10, 2011

Taxpayer Compliance

If you are losing sleep because of unreported income, tax evasion or unfiled tax returns, your situation is probably not as bad as you fear.

The Canadian income taxation system is based on self-assessment. Taxpayers sometimes fail to report all income that they should, either through inadvertence or due to the extreme complexities of the Canadian tax system.

Taxpayers may sometimes neglect to file tax returns at all. They neglect to file one year, then they are afraid to file the next year’s tax return because of the old unfiled return. A series of unfiled returns then builds up.

Revenue Canada Policy

Revenue Canada’s policy is to promote voluntary compliance with the tax laws, through a program sometimes called tax amnesty or tax pardon. It has, therefore, a policy to encourage taxpayers, both individuals and corporations, to come forward to report any previously unreported income or GST or to file returns that were not previously filed.

To encourage this voluntary compliance, Revenue Canada has a policy, called Voluntary Disclosure but often referred to as Tax Amnesty Canada, of not undertaking criminal prosecutions or even applying civil penalties, including late filing penalties, on any voluntary disclosures. There is a waiver of penalties and sometimes an interest reduction can be negotiated.

Furthermore, the identity of anyone making a voluntary disclosure will be held in confidence. This is a marked contrast to Revenue Canada’s position with tax prosecutions where they seek the maximum publicity possible.

This policy applies even to someone who has committed deliberate tax evasion, including failure to declare income, whether earned in Canada or offshore or through criminal activity.

Requirements for Voluntary Disclosure or Tax Amnesty

To meet Revenue Canada’s criteria, the taxpayer must initiate the voluntary disclosure. If Revenue Canada has begun audit or enforcement action, or has demanded that returns be filed, the disclosure is not considered to be voluntary and full penalties will be applied.

The disclosure must include enough details to allow all of the facts to be verified.

The taxpayer must pay the total amount of any taxes and interest owing at the time of disclosure, or make acceptable payment arrangements.

Incomplete Disclosure

If the disclosure is initiated by the taxpayer but is incomplete, the disclosed information will be considered to be voluntary. However, the taxpayer will be subject to civil penalties or prosecution relating to any substantial undisclosed amounts.

Timing of Disclosure

A voluntary disclosure is effective from the time the taxpayer or his representatives contact Revenue Canada, even if detailed submissions are not made at that time. Therefore, for example, a taxpayer who has not filed tax returns for several years need not have them ready when first contacting Revenue Canada. However the taxpayer will have to come to an agreement with Revenue Canada as to what period of time will be required to submit all necessary information. The initial contact will be considered to be the date of the voluntary disclosure. The rules for a no-names disclosure are slightly different.

Unfiled Tax Returns

A taxpayer who voluntarily files unfiled returns will only be required to pay the tax owing on the reported income with interest. No late filing penalty will be charged.

Unreported Income

Where a taxpayer has failed to report income, including foreign source income, unreported online income including unreported ebay income and voluntarily reports it, only the tax owing on the unreported income plus interest on it will be charged.


"This article provides 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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