Tax Tip[] VDP

Major changes to the Voluntary Disclosures Program

“relief from penalties will be significantly curtailed”

The Voluntary Disclosures Program (VDP) is a CRA administrative program that allows taxpayers to voluntarily come forward and correct up to 10 years of errors or omissions in their Canadian tax affairs with relief from prosecution and penalties.  There can also be relief from interest for amounts owing for statute barred years.

In Tax Tip 16-01 we recommended that taxpayers with unreported income make a voluntary disclosure (Disclosure) as soon as possible. Now there may be more reason to act quickly.  Under proposed changes to the VDP (Draft Information Circular IC00-1R6), the relief from penalties will be significantly curtailed in certain common scenarios after December 31, 2017.

Under the new VDP program, there will be two tracks for income tax disclosures, being the General Program and the Limited Program.  If a Disclosure is accepted under the General Program, the Taxpayer will be eligible for penalty relief and partial interest relief, in a way similar to what is provided under the current program.  Although not stated in draft IC00-1R6, it appears that non-compliance that could result in criminal prosecution will not be eligible for the General Program.

VDP applications that disclose “major non-compliance” will be processed under a new “Limited Program” and, if accepted, relief will only be provided from prosecution and gross-negligence penalties.  All other penalties such as late-filing penalties will be applicable and no interest relief will be provided.

The Limited Program will be applicable in any of the following situations:

  • active efforts to avoid detection through the use of offshore vehicles or other means
  • large dollar amounts (not defined)
  • 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
  • any other circumstance in which a high degree of taxpayer culpability contributed to the failure to comply

For example, the CRA has sent letters to taxpayers regarding receipt of funds reported by banks and the letters provide a note for the taxpayers to consider reporting income and Form T1135 under the VDP.  If the disclosure is made by such a taxpayer after 2017, it will come under the Limited Program with no relief for late filing penalties or interest.  In addition, it would appear that any late filing of foreign reporting forms will also be subject to late-filing penalties of $2,500 per year per form under the Limited Program from 2018 onwards.

The new VDP program eliminates the protection provided under the current no-names disclosure process and replaces it with  a no-names pre-disclosure discussion process that does not protect the Taxpayer if they are approached by the CRA before filing a “named” voluntary disclosure, with a completed and signed Form RC199 to mark the Effective Date of Disclosure.

Taxpayers and their advisors should consider whether a voluntary disclosure is desired, even if it is for something as simple as not filing Forms T1135 for required years.   If a voluntary disclosure is required, it should be made before the end of 2017 before the new limitations become applicable.


TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.

Voluntary Disclosures – Time is of the Essence

“the initial submission can be made quickly, on a no-names basis

Under the voluntary disclosures program (“VDP”) the Canada Revenue Agency (“CRA”) has the authority to waive penalties, reduce interest otherwise payable and not lay criminal charges (if applicable) for taxpayers who voluntarily disclose unreported income or file missing information returns. A voluntary disclosure will not be accepted if enforcement action (including a request for a tax return, notification that an audit will begin, or various other actions) has been initiated by the CRA or a provincial tax authority. There is good information about the VDP on the CRA’s website.

In Tax Tip 13-10 we advised that the proliferation of information exchange agreements, cooperation between taxing authorities and increased information reporting requirements will make it easier for the CRA to find unreported income and that use of the VDP should seriously be considered.

Although Switzerland will only be initiating its first automatic information exchange with Canada by 2018,  recent actions taken by some Swiss banks have made it more likely that the CRA will learn about these foreign accounts even sooner.

Some Swiss banks are now requiring that their Canadian clients certify that the income and capital gains earned in the account have been disclosed to the CRA. UBS has gone as far as to advise their clients to provide account closing instructions if this certification could was not made by December 31, 2015.  Failing receipt of the certification, UBS stated it would terminate its banking relationship with these clients and likely mail correspondence rather than retain the mail (as was done in the past). Presumably funds will be mailed or transferred electronically to other bank account(s) owned by these clients. If the electronic transfer is made to a Canadian institution and is more than $10,000 it will be reported to the CRA.  This reporting obligation is described in Tax Tip 14-02.

In cases where assets and/or related income have not been declared we have been able to appease the Swiss banks if we confirm that a taxpayer is making a submission under the VDP. However, now that the December 31, 2015 deadline has passed, this certification may be too late and the bank may be in the process of closing the account and forwarding the funds back to Canada.

If so, the CRA will likely learn about the existence of these foreign investment accounts in 2016. If a voluntary disclosure is not initiated in time, tax penalties, full interest and possible criminal charges and fines could be assessed.

We recommend that taxpayers with unreported income make a voluntary disclosure as soon as possible in order to avoid these results.  In many cases the initial submission can be made quickly, on a no-names basis  if not all the required information is readily available.


TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.