Voluntary disclosures program update – The new normal

13 minute read
28 September 2021

The Canada Revenue Agency ("CRA") voluntary disclosures program ("VDP") has been around for decades. While the VDP has changed periodically, perhaps the most significant change occurred when the new Information Circular IC00-1R6, initially published on December 15, 2017, became effective on March 1, 2018. After making some general comments about the VDP, this article highlights some of the major differences, before and after March 1, 2018, in the CRA's policy and practice.

VDP background

The purpose of the VDP has always been to allow taxpayers to come forward to correct their mistakes and/or omissions and pay their tax. To incentivize taxpayers, the CRA reduced the interest, waived civil penalties and agreed to not pursue potential criminal prosecution for tax evasion. The two main conditions for acceptance under the VDP were that the application had to be voluntary and complete; voluntary in the sense that the application was filed before the CRA had commenced an enforcement action and complete in the sense that it substantially covered all previous tax omissions and/or reporting mistakes. There were two other conditions, but they were almost always non-contentious.

Disclosures could be initiated on an anonymous or so-called no-names basis, with 90 days being allowed to disclose the taxpayer's identity. Extensions to compete the application, beyond that 90 day period, were routinely allowed, provided the taxpayer's identity was revealed to the CRA before the 90 days expired. Applications were almost always immediately started on this no-names basis, to establish the earliest possible date for determining voluntariness.

Significantly, the reason for the taxpayer's non-compliance was not a relevant consideration for whether the application would be accepted by the CRA under the former VDP.

In our view, the former VDP was balanced and proportionate. From the taxpayer's perspective, tax reporting could be quickly and predictably regularized. For the CRA, it was found money, well into the hundreds of millions of dollars annually that might not have otherwise made its way into the government's coffers. It was a win-win.

Our views on the VDP were captured in an op-ed published in 2015, entitled "Why You Should Voluntarily Disclose Your Offshore Investments".[1] We listed six reasons to make a voluntary disclosure and one of them foreshadowed the 2018 changes:

The door may close. If international information exchange agreements spell the demise of offshore banking secrecy, the CRA may no longer want or need to give taxpayers incentives to come forward. Instead, it may simply prosecute, imposing full penalties. The CRA has said the recently signed Multilateral Competent Authority Agreement will help set the stage for the automatic exchange of information, beginning in 2018.

The writing was on the wall.

March, 2018 changes to the VDP

Essentially, there were three changes to the VDP:

  1. The eligibility for the VDP was restricted;
  2. The available relief was reduced; and
  3. The CRA VDP officers were given more discretion.

1. Eligibility for the VDP is more restricted

The VDP now provides two tracks for seeking relief. The first track, called the General Program, offers generous relief similar to what was granted before March, 2018. The second track, called the Limited Program, is essentially for less sympathetic scenarios, including where there were intentional efforts to avoid tax, large dollar amounts, many years of non-compliance, and/or a sophisticated taxpayer. A disclosure might also be streamed into the Limited Program if it was made after an official CRA statement concerning a compliance initiative, or after a CRA correspondence campaign. Very large corporations (with gross revenue in excess of $250M in at least two of the past five years) would also be considered under the Limited Program.  

Because it is strongly preferable to have a disclosure determined under the General Program, making an application is now more of an exercise in advocacy than it was previously. Any application made under the VDP should directly address each of the Limited Program factors, as well as explain why it should be considered for General Program relief.

What constitutes "voluntary" has also become more restricted. Voluntariness now contemplates situations where "the CRA has already received information regarding the specific taxpayer's (or a related taxpayer's) potential involvement in tax non-compliance (for example, a leak of offshore banking or other information that names the taxpayer)." Previously, voluntariness was always determined from the point of view of the taxpayer. The question was whether the taxpayer was aware of any CRA enforcement action before making the application. The former VDP specified that a disclosure might not qualify if, among other things, an enforcement action was likely to have uncovered the information disclosed. This criterion no longer appears in the new IC00-1R6, suggesting that an enforcement action might actually undermine voluntariness, even if it is not likely to touch on the information being disclosed.

Another significant change is that so-called no-names disclosures are no longer permitted. In our view, this in particular has contributed to a chilling effect on taxpayers, who sometimes tend to be reluctant to come forward, but who may gradually become more comfortable if they are able to inch towards the goal of full disclosure, by starting with an initial no-names letter.

The CRA's explanation of the completeness criterion includes some material changes in the post-March, 2018 VDP. This includes a statement that the taxpayer should include "any non-arm's length transactions and circumstances," which may be impractically vague.

Under the post-March, 2018 VDP, where books and records no longer exist "the taxpayer should make all reasonable efforts to estimate income for those years." This is another significant change in practice from the CRA's previous guidance, which was that a taxpayer should make reasonable efforts to obtain information and documents, including for years prior to the most recent ten years. The difference is obvious. Previously, the taxpayer was expected to search for historic information and documents. Under the current VDP, the request is to estimate historic income, a heightened expectation. Under the former VDP, it seemed the CRA tacitly accepted that going back more than ten years discouraged people from coming forward and, in any case, neither taxpayers nor financial institutions tended to keep more than ten years of records. When making a disclosure involving more than ten years under the present VDP, professional advice and caution are both strongly recommended.

Finally, one new condition of a valid application, under either the General or the Limited Program, is that it must include payment of the estimated tax owing, or there must be an acceptable payment arrangement put in place with CRA collections, with full financial disclosure and possibly security being provided by the taxpayer. This again in our view created a perceived barrier for taxpayers who would have previously only been able to make payment arrangements pursuant to a proposal in bankruptcy, after a voluntary disclosure had been accepted and the CRA had issued notices of reassessment confirming a reduced balance owing.

2. Available relief is reduced

Broadly speaking, the relief granted under the General Program is similar to the relief granted previously, although the interest relief is less than it was before. The relief granted under the Limited Program, however, is limited to waiving gross negligence penalties only. So, late filing (and late remittance) penalties and full interest get assessed.

Taxpayers granted relief under the Limited Program are also required to waive their rights to object to the notices of reassessment to be issued by the CRA and to further appeal to the Tax Court of Canada, regarding the subject matter of the application.

Penalty relief can only be granted for the previous ten years. Under the current post-March 2018 VDP, we have seen situations where penalties were assessed for years going back more than ten years, which is something we almost never saw for applications filed before then.

Finally, potential criminal prosecution for tax evasion is still waived and so the VDP of course remains a recommended course of action in circumstances where that is a material risk.

3. CRA VDP officers now have more discretion

The criteria for determining whether a disclosure falls under the General or Limited Programs is uncertain. Generally, the Limited Program is intended to apply where there is an element of intentional conduct on the part of the taxpayer or a closely related party, as noted above. As also noted, the CRA has provided a non-exhaustive list of factors that may be considered, including whether efforts were made to avoid detection through the use of offshore vehicles or other means, the amount of the omission, the number of years involved, the taxpayer's size and sophistication and whether the disclosure was made after an official CRA statement regarding an intended specific focus of compliance or following broad-based CRA correspondence. The application of many of these factors is subjective, however, which makes the outcome difficult to predict in any given case. Care must be exercised when framing the facts of any application, to seek to ensure the best outcome.

VDP operations manual

The VDP Operations Manual is the internal CRA document that explains the nuances of how the CRA operates the program. Through a formal access to information request, we secured a copy of the manual which, to our knowledge, is not publically available. The main takeaways from our review of the manual will be presented on October 26, 2021, as part of our next Tax Dispute Resolution Monthly Update Webinar.


Leading up to February 28, 2018, there was a flurry of voluntary disclosures, as people scurried to get into the VDP before the changeover. Since then, we have observed a decline, which in our view has resulted from the many restrictions and uncertainties discussed above. However, there are still various situations where making a disclosure is recommended and consulting with an experienced professional can help a taxpayer effectively navigate the current VDP. Non-specialists should seek specialist advice before attempting VD work, as in-depth knowledge, thorough consideration and care are now more important than ever.

Should you have any specific questions about this article or would like to discuss it further, you can contact the author or a member of our Tax Dispute Resolution Group.

[1] Originally published as an op-ed in The Globe and Mail on July 22, 2015.

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