Tax Tip[] Voluntary Disclosure

New Info Circular on Voluntary Disclosures

“The processing time of voluntary disclosures will be increased without the completion of Form RC199.”

As discussed in Tax Tips 05-26 (October 14, 2005) and 05-17 (July 11, 2005), taxpayers may wish to come forward to the Canada Revenue Agency (“CRA”) to voluntarily disclose certain errors or omissionsin their tax affairs in certain circumstances. To the extent that the disclosure is considered a valid voluntary disclosure, penalties and certain interest relief may be granted by the CRA using their discretionary powers provided to them under certain provisions of the Income Tax Act. The CRA has outlined their administrative policy regarding the voluntary disclosures program in CRA’s Information Circulars. On October 22, 2007 the CRA released Information Circular IC-00-1R2, which replaced Information Circular IC-00-1R (Sept. 30, 2002).

Information Circular IC-00-1R2 is more specific. Information Circular IC-00-1Rcontained 15 paragraphs of information whereas the new Information Circular contains 65 paragraphs. While experienced tax practitioners will not be surprised by many of the new paragraphs, one particular paragraph does stand out. The CRA now requires that a new form – Form RC199 – be completed and attached to the written disclosure being made to the applicable tax services office. While it appears that a valid voluntary disclosure could be made without the form, the CRA states that the processing time of the voluntary disclosure would be increased without the completion of Form RC199.

In recent years, the use of the voluntary disclosure program by taxpayers has significantly increased. It has been a very useful tool to assist in the correction of tax affairs for many taxpayers. We expect the use of the voluntary disclosure program to continue to increase. Given such expectation, it is not surprising that the CRA has continued to refine the program and document such requirements in the new Information Circular.

For those taxpayers affected, they should consider the merits of utilizing the voluntary disclosure program and reviewing the new Information Circular.


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 Disclosure – On a No-Name Basis

“There is a 90-day limit to disclose the taxpayer’s name.”

The CRA recently clarified its policy on no-name voluntary disclosures in a press release dated October 1, 2005. In general, a voluntary disclosure can be made on the basis of identifying the taxpayer or on a no-names basis. Where a taxpayer is identified immediately, then they are protected from any subsequent investigations or contact by the CRA. On a no-names basis, however, some advisors were unclear as to whether there was this protection from penalties when the name had not been given. The CRA has clarified its policy. The taxpayer is protected on a no-names basis for 90 days from the time the initial submission has been made. Essentially, the initial date for the voluntary disclosure on a no-names basis is either the date of receipt by a CRA Tax Services Office of a written voluntary disclosure submission or the receipt of a completed taxpayer agreement form (VDP-1).

This means that once CRA has made an official recording of the no-names voluntary disclosure, then there is a 90-day limit within which the name of the taxpayer must be given. If the name of the taxpayer is not given within this 90-day period, then the voluntary disclosure file is closed and the taxpayer is no longer protected from penalties or investigation.

A no-names voluntary disclosure is a powerful tool that taxpayers should use when applicable. However, a taxpayer and/or his advisor cannot use this on a perpetual basis. Instead, there are 90 days within which to complete a voluntary disclosure and submit all relevant information.


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.

Federal Court Makes Decision on Voluntary Disclosures

“No-names basis submission that was accepted by CRA cannot be disregarded by CRA afterwards if facts have not changed..”

In a recent Federal Court case (Karia 2005 FC 639), the Court had to deal with the issue of whether a disclosure can qualify as a voluntary disclosure if filed while other official investigations are under way. The Court also considered the extent to which the CRA is bound by correspondence that they provide in respect of unidentified voluntary disclosure candidates.

The taxpayer was investigated by the Peel Regional Police as part of a fraud investigation, which had nothing to do with the CRA. After a police search had been executed on the taxpayer, his lawyer contacted the CRA, on a “no-names” basis, to see if he could make a voluntary disclosure on behalf of his client. The lawyer admitted to the CRA that the taxpayer had been subjected to a search warrant by the police and had been charged with “a minor fraud.” The lawyer followed up his conversation with a letter, on a no-names basis, requesting written confirmation from the CRA that they would accept a voluntary disclosure. The CRA confirmed that they would accept the voluntary disclosure. The lawyer then revealed the taxpayer’s name and the name of his corporation.

The CRA rejected the voluntary disclosure on the basis that the voluntary disclosure had been filed with knowledge of enforcement action by an authority with which the CRA had an existing information exchange agreement. In support of this argument, the CRA referred to the Information Circular 00-1R, which, they said, confirmed the existence of the agreement. In fact, there was no “written agreement” but only an “informal relationship.”

The Federal Court concluded that the CRA could not challenge the voluntary disclosure because of the police investigation since the CRA had already given assurances that the disclosure could proceed. The Court stated that the taxpayer had advised the CRA that the police investigation was ongoing and was never told that this would be a problem. The Court made it clear that the CRA could be held to its original promise. Based on previous cases, if the CRA’s promise had breached a tax law, then the CRA might not have been bound by their original correspondence.

This is a significant case, which provides voluntary disclosure candidates with a substantial amount of comfort where a comfort letter has been given by the CRA.


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.