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The Canada Revenue Agency (CRA) recently updated the Voluntary Disclosures Program (VDP).  Key changes include the elimination of the General/Limited streams and the loosening of some requirements.  For example, the new policy states that the VDP program cannot be used if there is an audit or investigation in respect of the information being disclosed.  The previous policy was wider, stating that VDP cannot be used if there has been an "enforcement action" which could include letters from the CRA concerning the information being disclosed.  The degree of interest and penalty relief will depend on whether the application was "unprompted" or "prompted."

New VDP and intentional tax avoidance

The new policy states at paragraph 2 that "the VDP is not intended to serve as a vehicle for taxpayers to intentionally avoid their legal obligations".  We asked the CRA if this statement means that VDP may no longer be used by taxpayers that had intention (or could reasonably be perceived to have had intention) to avoid their tax obligations.  The following is their response:

"The statement is to reinforce that the VDP is not meant to be used and abused for tax planning purposes, or to reward taxpayers for repeated non-compliance. As long as the disclosure meets the eligibility criteria and is supported by sufficient documentation, the disclosure will generally be accepted."

Penalty relief for "prompted"  applications

For a "prompted" application, the CRA will may grant penalty relief of "up to" 100%.  We asked the CRA to provide a list of criteria they will use to determine the extent of penalty relief for a "prompted" application and received the following response:

"We are unable to provide a list at this time. The CRA reviews each disclosure on a case-by-case basis. Generally, the VDP would waive 100% penalties for applications that are granted relief. However, the new policy provides the program the flexibility to adapt to CRA's emerging compliance initiatives as needed."

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Ryan Minor
Chartered Professional Accountants of Canada
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Sounds like CRA wants to keep their options open.  I can't say that I blame them. I recall, in the early days of VDP, disclosures submitted a week or two after an overlooked filing deadline. There were also stories of firms filing "no names" VDPs that they would keep on the shelf for use by a client receiving an audit letter from CRA dated later than this initial disclosure date.

It's nice to hear that the default for even a "prompted" disclosure is still full penalty relief.