Understanding the Canadian tax system is no child’s play. Making sense of the complex laws and nitty-gritties of the tax system can give sleepless nights to even the most seasoned of taxpayers. It’s no wonder that many taxpayers make errors while filing their taxes, only to realize their mistake much later. But having realized their mistake, can taxpayers make amends later?
Voluntary Disclosure Program at a Glance
Yes, they can by applying for the Canada Revenue Agency’s (CRA) Voluntary Disclosure Program (VDP). The VDP is not for minor accounting errors or overlooks that one might make in their annual tax returns. To correct such mistakes, you will have to file amended returns. The VDP deals with cases whose discovery could lead to severe consequences. Some instances include inaccuracies, inconsistencies, delays, and omissions in tax filings for up to 10 years from the end of the current calendar year, as well as undisclosed domestic or foreign income/assets.
Through the VDP, taxpayers have the opportunity to voluntarily inform the CRA of any serious errors in their historical tax filings and rectify them before the CRA discovers and comes knocking. In return, the CRA offers some penalty relief. Starting October 1, 2025, the CRA will implement changes to make the program easier for taxpayers to understand and apply.
Although this sounds straightforward, the process involves more than just approaching and informing the CRA of such a mistake. Let’s take a look at it in more detail.
How Does the Voluntary Disclosure Program Work?
Application Stage: The VDP starts with you, the taxpayer (individual, sole proprietor, trust, corporation, or any other taxpaying entity), voluntarily approaching the CRA with the intention of correcting past errors in tax filing. Remember, the taxpayer must apply for the VDP before the CRA contacts them for the same problem.
The errors should pertain to taxes filed at least one year past the due date for filing and within 10 calendar years from the end of the year in respect of which you are seeking relief. This means that for a filing error made in 2016, you can only apply for the VDP till 2026, not later.
Review Stage: After receiving your VDP application, the CRA reviews your case and either accepts or rejects it. If accepted, it then assesses it under one of the two main categories:
- General Program, which includes applications for accidental errors. Under this category, you may even get full penalty relief and partial interest relief.
- Limited Program, which deals with intentional or serious non-compliance with tax laws. Cases falling under this category may get limited relief and avoid criminal prosecution, but will have to pay gross negligence penalties or interest in full.
The Minister of National Revenue, having reviewed the case minutely, can exercise discretion as to how much relief on the penalty and interest accrued (within the 10 calendar years as mentioned above) may be granted to the applicant.
Settlement Stage: After reviewing, you will be informed in writing about the CRA’s decision. You will then have to pay the remaining taxes and penalties, if any. From October 1, 2025, the VDP is offering two relief tiers:
1. General relief for unprompted applications, which can receive 75% relief on the applicable interest and 100% relief on the applicable penalties.
2. Partial relief for prompted applications, which can receive 25% relief on the applicable interest and up to 100% relief on the applicable penalties.
But you will still have to pay for any outstanding duties, taxes, interest, or charges owed.
The VDP can only be used once by a taxpayer. Only in infrequent situations can a taxpayer be allowed to apply for it again. Hence, take extra care to stay compliant and file your taxes correctly thereafter to avoid action by the CRA.
When Should You Use the Voluntary Disclosure Program?
As stated above, the VDP is different from normal tax amends and can only be used once. Therefore, even before applying for the VDP, it would be best to get guidance from a tax consultant who can expertly assess if you even need to apply for the VDP at all.
The CRA has published documents stating the parameters under which the VDP can be granted. It uses them for guidance. But these parameters are not binding on the CRA, and it is ultimately the agency’s discretion to grant relief under VDP, leaving room for uncertainty.
Having said that, individuals, trusts, corporations, with previously undisclosed income or assets, and offshore bank accounts are eligible to apply for the VDP. The error must be significant enough to warrant the application or potential application of a penalty.
Applying For the Voluntary Disclosure Program
The application for the VDP can be completed online through the CRA’s My Account or My Business Account portals, by mail, or by fax. You will have to fill out the newly updated Form RC199 or write a signed letter with all the necessary information.
You will then have to attach any essential documents related to the error, such as the tax returns, forms, receipts, invoices, and all financial records needed to support your disclosure application and correct the problem. An estimated payment of owed taxes or a payment arrangement will also have to be attached.
A duly filled application, if accepted, cannot save you from paying the remaining taxes or future CRA reassessments or audits. But it can certainly give you relief from prosecution or legal repercussions for not disclosing serious financial mistakes.
Seek Professional Help
The VDP application process in itself is tedious, with no room for error, and requires complete disclosure. It is always preferable to seek professional help in this one-time opportunity to rectify past errors. Tax consultants are well-versed with the CRA’s complicated guidelines and tax laws and are experts at understanding how these laws apply to your case. Applying for the VDP under their guidance gives your application a better chance of being accepted by the CRA and receiving maximum relief from penalties. And if the VDP invites additional investigation or reassessment, the tax consultant can communicate with the CRA on your behalf.
Contact Edelkoort Smethurst CPAs LLP in Burlington to Help You with Tax Filings
Mistakes in tax filing can be expensive if found by the CRA. The best solution is to stay compliant and accurate with tax filing, where a professional accountant can help. At Edelkoort Smethurst CPAs LLP, our accountants and tax experts can provide services such as filing and tax compliance. To learn more about how Edelkoort Smethurst CPAs LLP can provide you with the best accounting and tax expertise, contact us online or by telephone at 905-517-2297.