Voluntary Disclosures: Some Recommended Practices

By Ed Kroft, Q.C., J.D., LL.M., CGA (Hon.) and David Ross, BA, J.D.; Published in CPABC in Focus
Published: November/December 2013

The Voluntary Disclosures Program (VDP) of the Canada Revenue Agency (CRA) offers taxpayers a form of tax amnesty. The CRA will refrain from prosecuting taxpayers and will waive certain penalties and some interest if it accepts their disclosures.

The CRA’s published policy regarding the VDP is outlined in Information Circular IC00-1R3 (IC00-1R3).[1] The CRA also has 33-page set of internal VDP guidelines that elaborate on the its published policy; these guidelines contain useful information regarding topics such as the voluntariness of disclosures, the number of years the CRA will consider eligible for disclosure, and the application of penalties.[2]

To be accepted, a disclosure must satisfy four validity conditions: 1) It must be voluntary; 2) it must be complete; 3) a penalty must apply; and 4) it must be more than one year past due.

This article will not review these four conditions in detail—for more information, readers should consult IC00-1R3. Instead, this article will review some recent changes to the VDP and discuss some best practices for making effective voluntary disclosures to minimize taxpayers’ liabilities.

CRA administration of the VDP

The CRA reorganized the VDP in early 2013, and announced its new policies with the release of IC00-1R3 in March 2013.

Prior to this reorganization, taxpayers made disclosures to their local Tax Services Offices. Now, disclosure must be made to one of three regional tax centres: Shawinigan-South (Atlantic, Quebec, and Ontario Regions), Surrey (Pacific Region), or Winnipeg (Prairie Region).

CRA screeners use a checklist to review submissions for completeness. A disclosure must contain:

  • The taxpayer’s physical and mailing address, postal code, and phone number;
  • The taxpayer’s tax identification number (e.g. social insurance number);
  • The type of return or information slip involved;
  • The years or reporting periods involved;
  • The type of omission, including the amount of the disclosure, the reason for the omission, and, if a business is involved, the primary business activity;
  • An explanation of how the four validity conditions  are met;
  • A completed and signed Form RC199; and
  • A completed and signed Form T1013 or Form RC59 authorizing a representative.

Tips for making a voluntary disclosure

  1. Taxpayers should ensure that their disclosures contain the information required by the screeners’ checklist. A cover letter should set out the contents of the disclosure and outline the information required by the CRA.
  2. In the Pacific Region, the CRA is processing a backlog of disclosure requests. Taxpayers should, to the extent possible, make a single disclosure rather than submitting information piecemeal. A single disclosure will facilitate a speedier disclosure review. Submitting information on a piecemeal basis carries the risk that the CRA may not see any additional information waiting in a backlog before responding to the original disclosure.
  3. Where the disclosure involves unreported income or unfiled information returns such as T1135s, the CRA may ask the taxpayer to submit T1 adjustments and the unfiled information returns. To avoid delays, taxpayers may want to consider including these forms with their initial disclosure.
  4. A single disclosure may not always be possible, as taxpayers often need time to gather documents and calculate the amounts owing. But the longer taxpayers take to gather information before submitting their disclosure, the greater the risk that the CRA may begin an investigation—thereby preventing the disclosure from being “voluntary.” Therefore, if there is risk or concern that the CRA may audit or otherwise begin investigating them, taxpayers should submit an initial disclosure on a no-names basis or using estimates.
  5. Disclosures may involve many years of unreported amounts. If taxpayers are contemplating making a disclosure, they should be aware of certain statutory limits on the CRA’s authority to waive penalties and interest. Specifically, the CRA can waive penalty or interest charges provided the taxpayers request the waiver less than 10 years after the end of the taxation year in which the penalty or interest arose; the CRA cannot, however, waive any penalty that is mandatory if it is more than 10 years old, or waive interest charges that are more than 10 years old.

    For example, assume that “Jones” has an offshore bank account, has not reported the income from the account for the last 15 years, and has not reported the account on a T1135. Jones now voluntarily discloses this information to the CRA. The penalties for failure to file an information return in subsection 162(7) of the Income Tax Act (Act) are mandatory. The CRA cannot waive penalties for years more than 10 years previous, so Jones will be liable for this penalty for failing to file T1135s for five of the 15 years in question.

    Jones will also be liable for the interest on his tax debts for those five years. In the past, the CRA would not have waived interest on any debt that arose more than 10 years earlier; instead, it would have charged interest to Jones on unpaid taxes and penalties that began accumulating more than 10 years earlier, up to the present day. Now, however, the CRA will waive interest relating to the years during which the interest accrued; therefore, it can waive or reduce all of the interest accumulated within the last 10 years.
  6. Appendix E of CRA's internal VDP guidelines referred to earlier contains a complete list of discretionary and mandatory penalties. The gross negligence penalty in subsection 163(2) and the penalty in subsection 162(10) for failure to furnish foreign-based information are discretionary. Therefore, in the case of “Jones,” the CRA will choose not to assess these penalties for all 15 of the years in accordance with the VDP policy.
  7. Taxpayers often ask how far back the CRA will go—in other words, how many years of delinquencies must be disclosed. The current CRA policy is to require disclosure for all years for it to be considered “complete.” This can create problems for disclosures dating back more than 10 years, because, again, the CRA cannot waive interest or mandatory penalties going back more than a decade.

    Asking the CRA to accept disclosure only for the years for which records are available may provide a solution. Taxpayers do not always have records going back beyond 10 years. In such cases, taxpayers may submit a no-names disclosure asking the CRA to agree to only assess the years for which records are available, and to accept disclosure for these years as “complete.”
  8. Corporations, as well as individuals, may make “voluntary” disclosures. However, corporations wishing to do so must ensure that the CRA has not previously contacted current or past employees. Corporations must keep in mind that the CRA may have contacted former employees years before about non-filing or an audit issue, and that former employees may not have left any record of the contact. The CRA, however, will likely have a record of the contact, and may use the contact to dispute the “voluntariness” of the disclosure.
  9. A disclosure may not be considered “voluntary” if the CRA has already started enforcement action against: a) a person associated with, or related to, the taxpayers attempting to make the disclosure, or b) third parties where the enforcement action is sufficiently related to the disclosure. See paragraphs 32-33 of IC00-1R3 and section 3.2 of the internal VDP guidelines for more information. For example, the CRA may be auditing the spouse of an individual who wishes to make a “voluntary” disclosure about related issues.
  10. Before deciding to make a disclosure, taxpayers and their representatives must determine whether one is actually required. In other words, there should be consideration of whether the CRA is barred under the Act from reassessing the affected taxation years. The CRA may not be permitted to reassess the affected years if, for example, a taxpayer filed returns for the years in question and did not make any misrepresentations attributable to neglect, carelessness, or wilful default on the returns.
  11. Taxpayers may submit payment with their disclosures. Generally, in the absence of specific instructions, the CRA will apply the payment to the taxpayer’s current instalment account. Therefore, to minimize arrears and instalment interest on the disclosed amount, taxpayers should request that the CRA reallocate the payment to the reassessed years in the event that it issues a reassessment.

The VDP provides a process through which taxpayers can minimize liabilities with the CRA by choosing to come forward on a voluntary basis to comply with Canada’s tax laws. The guidelines outlined in this article are designed to help taxpayers—and their advisers—in their dealings with the CRA.

Ed Kroft is a partner with Blake, Cassels & Graydon LLP in Vancouver. He is a member of the firm’s tax group and leader of its tax controversy & litigation group. David Ross is an associate with Blake, Cassels & Graydon LLP, and is a member of its tax controversy & litigation group.


  1. Available on the CRA website (www.cra-arc.gc.ca).
  2. The internal VDP guidelines are not on the CRA website. They can be found on commercial tax databases. Readers are cautioned, however, that these internal guidelines were published in 2008; therefore, not all of the information within them may be current.

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