Canada: Disclosure Delayed May Be Disclosure Denied

Last Updated: December 4 2017
Article by Martin Sorensen and Nicholas Arrigo

In June 2017, the Canada Revenue Agency (CRA) announced far-reaching changes to the Voluntary Disclosures Program (VDP) for income tax matters that proposed to limit the relief granted and expand the qualification requirements in some common scenarios. In short, the proposed new rules were significantly less favourable to taxpayers than the existing ones, and they were proposed to become effective on January 1, 2018.

However, at the Canadian Tax Foundation's annual conference on November 20, 2017, a CRA representative stated that it was "highly likely" that the incoming set of rules governing the VDP will be delayed until at least June 2018. While taxpayers considering a voluntary disclosure may now have a bit of additional breathing room, they are nonetheless encouraged to take advantage of the current rules before the proposed changes become effective.

The Current Rules

The VDP is intended to promote compliance with Canadian tax laws by encouraging taxpayers to come forward voluntarily and correct errors and omissions in their dealings with the CRA. Taxpayers who make a valid disclosure under the VDP will pay the taxes owing, but may enjoy a reduced rate of interest, and will be free from the penalties or prosecution to which they would otherwise have been subject.

Under the current rules, taxpayers will generally qualify for relief under the VDP if they meet four eligibility requirements:

  1. The disclosure must be voluntary – the taxpayer must make the disclosure before becoming aware of an enforcement action.
  2. The disclosure must be complete – the taxpayer must provide full and accurate details of all facts and circumstances, and any relevant supporting documentation.
  3. The disclosure must involve the application, or potential application, of a penalty.
  4. The disclosure must involve information that is at least one year past due.

Applications that satisfy these four requirements will generally be valid, although the VDP will be unavailable in certain circumstances, for instance where applications relate to tax elections, rollovers, advanced pricing arrangements or bankruptcy returns.

The New Rules

The incoming changes will restrict the scope of the VDP by adding a fifth eligibility requirement, and by limiting or even denying relief in certain circumstances. The most significant changes to income tax disclosures are as follows.


In addition to the four eligibility requirements under the current rules, the new rules will require taxpayers to include payment of the estimated tax owing with their VDP application. In extraordinary circumstances, a payment arrangement supported by adequate security may be considered instead.


Income tax disclosures will be administered under two separate tracks: the "General Program" and the "Limited Program". The General Program will offer relief similar to that available under the current rules: protection from prosecution, relief from penalties and a partial interest reduction.

If a taxpayer discloses "major non-compliance", the application will fall under the Limited Program. As the name suggests, disclosures under the Limited Program will receive reduced relief. Taxpayers will still receive protection from criminal prosecution and will not be charged a gross negligence penalty even if the facts establish that they would otherwise be liable. However, the taxpayer will be potentially liable for all other penalties as applicable, and will not be eligible for interest relief.

In determining whether there has been major non-compliance, the CRA will consider whether the circumstances include one or more of the following:

  • active efforts to avoid detection through the use of offshore vehicles or other means;
  • large dollar amounts;
  • multiple years of non-compliance;
  • a sophisticated taxpayer;
  • the disclosure is made after an official CRA statement regarding its intended focus of compliance or following CRA correspondence or campaigns; and
  • any other circumstance in which a high degree of taxpayer culpability contributed to the failure to comply.


In certain circumstances, it is proposed that VDP relief will not be available at all. Two particularly notable circumstances are:

  • applications by a corporation with gross revenue in excess of $250 million in at least two of its last five taxation years; and
  • applications relating to transfer pricing adjustments or a penalty under section 247 of the Income Tax Act (Canada).


Currently, taxpayers are free to object to assessments or reassessments that arise as a result of their voluntary disclosures. Under the new rules, however, taxpayers whose applications are accepted under the Limited Program (i.e., in circumstances of major non-compliance) will be required to waive their objection rights in relation to the specific matter disclosed in the VDP and any related assessments. This waiver will not prevent a taxpayer from objecting in circumstances where the assessment includes a calculation error, relates to a characterization issue (e.g., income vs. capital gains treatment) or relates to an issue other than the matter voluntarily disclosed.


Under the current VDP rules, taxpayers who wish to remain anonymous may apply on a "no-name" basis, requesting that a CRA officer offer an initial assessment as to whether the disclosure will qualify for the VDP. If the response is in the affirmative, the taxpayer is given 90 days to provide identifying information and all supporting documentation required. Under the incoming rules, it is proposed that taxpayers may enter into informal, non-binding "pre-disclosure discussions" with a CRA official on an anonymous basis. It appears, however, that taxpayers will no longer enjoy a guaranteed 90-day protection period. Instead, the proposed guidelines provide that pre-disclosure discussions will "have no impact on CRA's ability to audit, penalize, or refer a case for criminal prosecution".

Next Steps

The new rules represent a potentially substantial reduction in the benefits available to taxpayers through the VDP. While the more severe limitations apply only in circumstances of "major non-compliance", the guidelines provide the CRA with significant flexibility to determine exactly what those circumstances are. Taxpayers who are aware of undisclosed non-compliance may wish to commence a voluntary disclosure before the proposed changes take effect.

We encourage you to reach out to a member of the Bennett Jones tax team to discuss how these changes may affect you or your business.

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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Martin Sorensen
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