What is the voluntary disclosure program?
The Voluntary Disclosures Program (VDP) gives taxpayers a chance to come forward to the Canada Revenue Agency (CRA) to correct errors or omissions in their tax affairs. Where relief is granted, taxpayers may benefit from penalties and interest relief and protection from criminal prosecution. However, all taxes owing must still be paid in full.
The purpose of the VDP is to provide fair relief, not to reward non-compliance. Taxpayers who comply with the law should not be placed at a disadvantage compared to those who rely on the VDP. The program is not designed as a tool for deliberately avoiding tax obligations under legislation administered by the CRA.
The VDP applies to disclosures involving income tax, GST/HST, withholding taxes, excise duties under the Excise Act, 2001, and excise taxes under the Excise Tax Act and other tax issues. VDP applications filed on or after October 1, 2025, will be reviewed under the new policy in CRA publication IC00-1R7.
Types of relief available
If the VDP relief is granted, there are three main benefits a taxpayer may receive:
- penalty relief
- interest relief
- no referral for criminal prosecution for the issue(s) disclosed
VDP Eligibility
Any taxpayer may apply to the VDP to correct errors or omissions, but relief is only granted if certain conditions are met. The application must be a) voluntary, b) relate to a tax year at least one year past its filing due date, and c) involve an error or omission with applicable interest or penalties. Applicants must also provide complete supporting documents, respond fully to CRA requests, and pay or arrange payment for the estimated taxes owing.
The most critical condition of the voluntary disclosure application is that it must be voluntary. An application will not be considered voluntary if a CRA enforcement action, such as a tax audit or investigation, has already been initiated against the taxpayer—or a related taxpayer—regarding the information being disclosed. In the VDP context, such audits or investigations are not limited to those carried out by the CRA; they may also be conducted by law enforcement agencies, securities commissions, or other federal or provincial regulatory bodies.
The CRA's latest publication IC00-1R7 also introduced two streams,
- An unprompted application occurs when a taxpayer makes a disclosure without prior CRA communication about a specific compliance issue, or after only receiving general guidance, such as an education letter.
- A prompted application arises when the disclosure follows CRA contact about a specific compliance issue, such as identifying errors, setting deadlines for correction, or when the CRA has obtained third-party information linking the taxpayer to possible non-compliance.
Unfortunately, IC00-1R7 does not provide an example or details regarding the term “voluntariness”. Fortunately, case law has provided guidanceregarding the court’s view on how an enforcement action may impact a taxpayer’s voluntary disclosure application. Note that these were court decisions regarding the CRA’s old VD policy under IC00-1R6, so the interpretation of the term “voluntariness” may change under the new VD policy.
In Poon v. Canada, 2009 FC 432,Mr. Poon submitted voluntary disclosure applications for both himself and his corporation, but the CRA rejected them on the basis that the corporation had previously been contacted by the CRA.
Mr. Poon sought judicial review of the denial of his personal application. In its ruling, the Federal Court, per Justice Simpson, identified two key questions that must be considered when enforcement action has occurred:
- Was the taxpayer directly contacted, or reasonably aware of the enforcement action?
- Would the enforcement action likely have uncovered the information being disclosed?
If the answer to either question is no, the disclosure may still qualify as voluntary. In Mr. Poon’s case, the Court found that the CRA had failed to properly address the second question and overturned the decision. The Court stressed that, when assessing voluntariness, taxpayers should be given the benefit of the doubt.
In Amour International Mines d’Or Ltée v. Canada, 2010 FC 1070, the CRA rejected a voluntary disclosure on the basis that it was not voluntary due to an ongoing enforcement action. The case concerned AIMO, which had paid dividends to foreign shareholders without remitting the required amounts to the CRA. Following receipt of a letter on an unrelated matter, AIMO submitted a voluntary disclosure.
Justice Harrington ruled in AIMO’s favour, holding that the CRA must establish that the enforcement action was likely to reveal the information being disclosed. Because the CRA’s conclusion rested on speculation rather than evidence, it was deemed unreasonable. Accordingly, AIMO’s judicial review application was allowed.
Pro tax tips – Determining whether a disclosure is truly voluntary under the VDP can be complex
Determining whether a disclosure is truly voluntary under the VDP can be complex. The CRA must carefully evaluate whether any enforcement action could reasonably have uncovered the information being disclosed.
As demonstrated in the Poon and Amour International decisions, the Courts closely scrutinize the CRA’s determinations, especially where doubts about voluntariness exist. Furthermore, the introduction of two new streams of the VDP also adds to the uncertainty of the condition of voluntariness.
If you are considering a voluntary disclosure, it is essential to seek advice from an experienced Canadian tax lawyer to ensure your application satisfies the program’s requirements.
FAQ
What is the VDP and why should you consider it?
The Canada Revenue Agency’s (CRA) Voluntary Disclosures Program (VDP) allows taxpayers to correct errors or omissions in their tax filings, such as unreported income, missed filings, or incorrect claims. If accepted, the program can provide relief from penalties, partial interest, and criminal prosecution, though all taxes owing must still be paid.
To qualify, the disclosure must be voluntary, complete, and involve information at least one year past its due date. Applicants must also provide full supporting documents and pay or arrange payment of the tax owing.
What are the conditions of the VDP?
The following conditions must be met to qualify for relief:
- The application is eligible, which means that:
- The application is voluntary (Determining whether a disclosure is truly voluntary can be complex),
- The application includes information that relates to a tax year that is at least one year past the due date for filing,
- The application includes an error or omission with applicable interest charges, penalties, or both.
- All supporting documents are included, which means that:
- The taxpayer provides all relevant information for all required tax years and responds comprehensively and promptly to all CRA requests for information
- Payment or a request for a payment arrangement is made for the estimated tax owing, if it applies.
How does the CRA’s enforcement action impact a taxpayer’s VDP?
An enforcement action may potentially invalidate a taxpayer’s eligibility for the VDP. Examples of CRA enforcement actions include a tax audit or investigation that has already been initiated against the taxpayer, or a related taxpayer such as a corporation or trust.
Case law indicates that whether an enforcement action would disqualify a taxpayer’s voluntary disclosure application depends on how likely it is to uncover the information disclosed by a taxpayer’s VDP. It is recommended that taxpayers consult with an experienced Canadian tax lawyer if faced with such CRA actions to determine their eligibility for the VDP.
Disclaimer: This article only provides broad information and 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.