Canada: Voluntary Disclosures

This article provides information about the Voluntary Disclosure Program (VDP) administered by the Canada Revenue Agency (CRA). The VDP encourages taxpayers to come forward voluntarily to declare information that may not have been previously reported. It may be used to divulge unreported or underreported financial information. Use of this provision provides defense against penalty and prosecution.  

The CRA's Income Tax Information Circular IC00-1R3 states that the VDP can be used if a taxpayer "failed to fulfill their obligations under the applicable act, failed to report any taxable income they received, claimed ineligible expenses on a tax return, failed to remit source deductions of their employees, failed to report an amount of GST/HST, failed to file information returns and failed to report foreign sourced income that is taxable in Canada." 

The VDP also entitles the taxpayer to come forward anonymously under a "No-Name Policy" that allows the taxpayer to achieve compliance and still remain unknown. No-name disclosures may be used in instances where a taxpayer is determining the validity of his or her particular situation under a VDP. This gives the taxpayer the chance to present the facts to the CRA and gain an understanding of the effects of remaining non-compliant or seeking coverage under a VDP.

Under the VDP, the taxpayer is required to satisfy all outstanding tax amounts as well as interest on the outstanding amounts. However, any applicable penalties will be waived. Relief from interest is also available in certain situations, depending on the nature of the transactions within the scope of the business.

Non-residents may also use the VDP and are subject to the same rules and requirements for a successful disclosure.

The criteria for a valid voluntary disclosure are as follows, as described in the CRA's Income Tax Information Circular IC00-1R3:

  1. The disclosure must be voluntary. In the event the taxpayer has been contacted or informed by the CRA of an audit or similar investigation, or has been requested to file outstanding returns, the disclosure will not be considered valid. A disclosure submitted after any of the above enforcements will not be granted.
  2. The disclosure must be complete and accurate. The facts provided in the disclosure must include all previously unreported or underreported information.
  3. The disclosure requires a penalty to exist. As a result of the information being disclosed, if a penalty is not present, all such information will not be considered under a voluntary disclosure and should therefore be reported regularly.
  4. The disclosure must include information that is one year past due. If the information included is less than one year old, it must be used to correct a previous return and it must include information that is one year past due.

The documentary requirements for a valid VDP must include an RC-199, which is a "taxpayer agreement." This form can be obtained from the CRA website. Personal information, as well as necessary CRA registration numbers, must also be included. In addition, depending on the specific program account that is involved in the disclosure, all necessary forms, slips and returns must be included. Finally, the disclosure must also include a detailed explanation of the facts and the taxpayer's validity under the VDP. Upon review, the CRA may request further information from the taxpayer before accepting the disclosure.

In recent years, due to taxpayers realizing that the CRA is aggressively pursuing non-compliance, Collins Barrow Toronto LLP has completed many voluntary disclosures on behalf of clients. Each case poses different facts and requires the understanding of the applicable legislation to accurately present the disclosure to the CRA.

However, in our recent submissions since April 2013, one aspect that remains consistent is the complexity and inefficiency of the CRA's review of the disclosure process. For example, in instances where we present a disclosure for non-resident non-registrants, in addition to the full documentary requirements of a disclosure we also include an RC-1 requesting backdating of registration, an RC-59 authorizing us to speak with the CRA on behalf of the client and completion of all necessary tax returns. We understand it is CRA policy, upon receipt of this package, to send the various documents to the appropriate tax service centers across the nation for processing. As a result of different offices in different provinces processing what was submitted as a collective package, each separate portion of the disclosure is reviewed individually. If certain aspects of the disclosure are processed before others, the system might issue a request to file, an arbitrary assessment or even a notice of assessment with full penalty and interest. Undoubtedly, this results in delays and additional fees for our clients.

In response to these experiences with the VDP program, we strive to streamline the package we present to the CRA to minimize the need for additional information requirements. This helps to ensure that disclosures are processed in a timely manner for our clients.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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