Voluntary Disclosure Program

The Voluntary Disclosure Program (VDP) of the Canada Revenue Agency (CRA) provides a break to taxpayers and registrants who offer to correct their tax filing liabilities before authorities send a notice. Relief can mean the person will pay less in penalties or interest or will not undergo prosecution for the information disclosed.  

Most Canadians pay their taxes religiously, so the CRA is very cautious in approving VDP applications. This ensures fairness and prevents the program from becoming an exit door for those who are merely trying to escape their tax duties. For the same reasons, the CRA reserves more significant breaks for those who committed honest mistakes than those who deliberately tried to avoid taxes.   

Under the VDP, a taxpayer can be any individual, employer, corporation, partnership, or trust. A registrant can be anyone who pays a certain amount as or on account of tax, such as a GST/HST registrant or an excise tax refund claimant. While the program loosely defines taxpayers and registrants, both must meet eligibility requirements according to the relevant application stream.  

Income Tax Stream Eligibility and Relief

The Voluntary Disclosure Program reviews each case based on its merits. But a taxpayer is typically eligible if they failed to do specific tasks, such as:  

  • Meeting their obligations under the Federal Income Tax Act
  • Reporting any received taxable income, including overseas-sourced earnings
  • Claiming expenses on a tax return by mistake
  • Remitting source deductions
  • Filing information returns

After a careful review, the VDP may also reject an application, especially if it involves any of the following:

  • An income tax return (ITR) with no expected refunds or taxes owed
  • A tax treatment election 
  • Advance pricing 
  • Agreements discretionary to the Canadian authority under a particular tax treaty  
  • Receivership or bankruptcy 
  • Penalty and interest relief requests made after the assessment  

Once accepted into the Income Tax stream, an application will be further reviewed to determine the forms of relief suitable for the applicant. The two relief categories under this stream are the following:  

  • General Program. Taxpayers who committed unintentional errors in their returns may qualify for relief under this program. With an approved application, a taxpayer will be neither prosecuted nor charged penalties and will be eligible for a reduced interest on the amount owed. 
  • Limited Program. Applicants who intentionally avoided taxes may qualify for this program, which can free them from criminal prosecution and gross negligence penalties. However, they must pay other penalties and the total amount they owe with no interest relief.  

GST/HST Stream Eligibility and Relief

When applying to the VDP under the GST/HST stream, a registrant may be eligible if they failed to perform any of the tasks listed below:  

  • Paying taxes as per the relevant law
  • Charging, collecting, or reporting GST/HST during any reporting period 
  • Properly claiming input tax credits, rebates, or refunds
  • Supplying complete information on a return for any reporting period
  • Filing information returns 

The VDP can deny an application under the GST/HST stream if it is related to any of the scenarios described below: 

  • An attempt to raise rebates, input tax, or other tax credits without a parallel hike in tax liability for the application period  
  • A tax treatment election 
  • Receivership or bankruptcy  
  • Penalty and interest relief requests made after the assessment  

Like the Income Tax stream, the GST/HST stream has categories that grant different forms of relief for taxpayers with varying circumstances. These include:

  • Wash Transactions Program. In a typical wash transaction, a supplier does not charge or collect GST/HST from a registrant who is entitled to a full input tax credit. An applicant who qualifies for this program will not face prosecution and will be eligible for full penalty and interest relief.  
  • General Program. Registrants who volunteer to correct unintentional and reasonable mistakes in their returns are qualified for this program. If accepted, they will not face prosecution or pay any penalties. Also, they will be eligible to pay only half of the applicable interest rate for the years disclosed. 
  • Limited Program. Registrants who deliberately avoided their tax duties may qualify for this program. If accepted, they will not face criminal prosecution or pay a gross negligence penalty. However, they will be charged other applicable penalties and interest with no relief.    

Applying to the VDP is easiest with Form RC199, Voluntary Disclosure Program (VDP) Application. But applicants can also send a letter with all the information required on the form. If they go for the second option, they must provide all information requested in Sections 1 and 2 of the documents. If applicable, any details asked for in Sections 3 to 6 should also appear in the letter. Lastly, applicants must state they have read and agree to Section 7 or the Taxpayer Declaration. 

Applying to the VDP through a representative is possible, but this will come with different instructions. To avoid wasting time with returned documents, applicants should consult an expert before taking any steps.

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