Demystifying the new Voluntary Disclosures Program

Oct 09, 2019
Oct 09, 2019
0 min. read
Business tax

On March 1, 2018, the Canada Revenue Agency rolled out the new Voluntary Disclosures Program (VDP). The changes restricted eligibility for the VDP, reduced the relief available and provided CRA VDP officers with discretion when considering whether to accept an application under the VDP, creating a significant degree of uncertainty for taxpayers. In this Tax Alert, we explain the material changes to the VDP and discuss the potential implications of these changes to taxpayers.

Background and purpose of the VDP

The purpose of the VDP is to allow taxpayers to come forward to correct non-compliance, pay the tax related to the non-compliance and be relieved from penalties and a portion of the interest on the tax.

CRA established the parameters of the old VDP in 1991 and has been operating the VDP with only minor changes since then. Under the old VDP, generally speaking, a taxpayer would qualify if(1) the taxpayer initiated an application under the VDP before CRA contacted the taxpayer or a related party about the non-compliance and (2) the taxpayer corrected all non-compliance, rather than simply select non-compliance. The reason for the taxpayer’s non-compliance was irrelevant under the old VDP. In fact, CRA VDP officers would not even inquire about the reason for the taxpayer’s non-compliance.

The other two criteria under the old VDP were (1) the non-compliance must have been subject to a penalty or potential application of a penalty and (2) the non-compliance was at least one year past due. These two criteria were rarely contentious and were present in most types of non-compliance.

Another key feature of the old VDP was that a taxpayer could initiate an anonymous application under the VDP and secure non-binding comfort from CRA that the taxpayer’s facts and circumstances would qualify for the VDP, all prior to disclosing the taxpayer’s identity. Finally, the old VDP provided the taxpayer with 90 days from the initial application to negotiate the soft comfort from CRA, prepare the necessary tax filings to correct the non-compliance and decide whether to proceed with releasing the taxpayer’s identity and submitting the corrected tax filings.

If the taxpayer satisfied the criteria identified above, CRA would accept the application under the VDP and would waive all penalties – both late-filing penalties and potential gross-negligence penalties – and would reduce the interest by four percentage points for all years older than the three most-recent years.

The new VDP

There are three major changes to the VDP. First, the VDP now has two tracks – one for minor and unintentional omissions and one for large or intentional omissions. CRA provides less penalty and interest relief for large or intentional omissions, and the criteria for determining in which track a taxpayer’s omissions fall are uncertain. Second, the criteria for what constitutes a ‘voluntary’ disclosure is more restricted than it was under the old VDP. Third, the VDP application process is markedly different, as CRA has removed the 90-day period within which a taxpayer was protected and had anonymity before deciding to proceed with a VDP application.


CRA will now process VDP applications under either (1) the General Program, for minor and unintentional omissions, or (2) the Limited Program for major or intentional omissions. ‘Limited’ refers to the limited amount of relief CRA provides compared to the General Program. If CRA accepts a taxpayer’s application under the General Program, CRA will still waive all penalties but will now only cancel half of the interest for the years older than the three most-recent years. If CRA accepts a taxpayer’s application under the Limited Program, CRA will not waive late-filing penalties and will not cancel any interest; instead, CRA will only waive gross-negligence penalties. In addition, before accepting an application under the Limited Program, CRA will require that the taxpayer waive the taxpayer’s objection rights related to the subject matter of the disclosure. This is subject to an objection related to a characterization or calculation issue.

Clearly the difference between being accepted under the General Program and the Limited Program has significant financial consequences. It is important to note that the CRA VDP officers will make the determination as to whether a disclosure application falls under the General Program or the Limited Program. The following is a non-exhaustive list of factors that will cause CRA to consider a disclosure under the Limited Program:

  1. The taxpayer charged and collected HST but did not remit HST;
  2. The taxpayer earned at least $250 million in revenue in at least two of the last five fiscal years;
  3. The taxpayer took efforts to avoid CRA detection;
  4. The amount of the omission is significant;
  5. The omission relates to a large number of years;
  6. The taxpayer’s actions related to the non-compliance amount to gross negligence;
  7. The taxpayer made the disclosure after CRA announced a focus on the specific non-compliance category; and
  8. The taxpayer is a sophisticated taxpayer.

Factors three through eight are subjective and, therefore, the VDP officers will have considerable discretion when interpreting the facts and determining whether to consider the disclosure under the General Program or the Limited Program. It is difficult to predict how VDP officers will exercise their discretion – is one of these factors sufficient for CRA to consider the application under the more punitive Limited Program? Moreover, because the new VDP is still in its infancy, we have not yet seen how CRA will use its discretionary power and do not have the benefit of jurisprudence examining CRA’s exercise of discretion.

However, what is clear is that, unlike the old VDP, the reason for the taxpayer’s non-compliance is now a major factor in determining the relief a taxpayer will receive under the new VDP.


Under the old VDP, CRA would consider that an application satisfied the voluntary criterion provided that CRA had not yet contacted the taxpayer or a related entity about the non-compliance or about a matter that would inevitably lead CRA to uncover the non-compliance.

Under the new VDP, CRA will not accept disclosures as voluntary if CRA received information related to the non-compliance from another source. For example, if a taxpayer is named in an offshore information leak like the Panama Papers, CRA will no longer consider the taxpayer’s disclosure voluntary even if CRA has not contacted the taxpayer or a related entity.


Taxpayers can no longer initiate an application under the VDP without also releasing the taxpayer’s identity in the initial application. In addition, a taxpayer no longer benefits from a 90-day period from the initial application – during which the taxpayer is protected from CRA enforcement action – to prepare all the tax filings to correct the non-compliance. Instead, at the time the taxpayer initiates an application under the new VDP, the taxpayer must (1) release the taxpayer’s identity, (2) submit complete tax filings to correct the non-compliance and (3) pay an estimate of the tax (but not the interest).

The effect of the new VDP application process is that taxpayers must decide whether to make an application under the VDP without receiving any comfort from CRA regarding (1) whether the facts and circumstances qualify for the VDP and (2) whether CRA will consider the application under the General Program or the Limited Program.

It is prudent for taxpayers to understand the new VDP process, the new VDP restrictions and the information that VDP officers will now consider when evaluating a disclosure application. With this knowledge, taxpayers can make informed decisions and can submit timely and complete VDP applications if they uncover prior non-compliance.

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