What If the CRA Rejects My Voluntary Disclosure Application in Canada?

A denial letter after a voluntary disclosure is stressful, because you came forward expecting relief. The good news is that a denial is not necessarily the end of the road, and there are defined steps you can take.

This article explains why applications are commonly refused, what a second review involves, what other options may exist, and what exposure you may now face. Your own letter is the starting point, so read it closely and consider getting advice quickly.

This article covers Canadian federal tax law, which applies in every province.

Why applications get refused

The CRA may deny an application as incomplete if requested information or documents are not provided within a reasonable timeframe. It may also deny for insufficient information or other non-compliance. The VDP says it will consider fully completed applications only.

• The disclosure was not voluntary because an audit or investigation had already started against you or a related taxpayer for that information.
• A condition was missing, such as payment of the estimated tax or a payment arrangement request.
• The situation is one that is generally not eligible, such as an application producing a refund or no tax or penalties owing, a request for relief on penalties or interest already assessed, or an insolvency in the years involved.
• For GST/HST, an application seeking to alter an election, or input tax credit increases with no matching tax liability increase, may not qualify.

Read the decision letter carefully

The decision letter states the application type (unprompted or prompted), the relief level and the eligible tax years. If relief is denied, the letter gives the reason. A partial result is possible too: you may have been given prompted treatment when you believe you were unprompted, or only some years may be covered.

If the letter is unclear or you want to check the status of your application, the CRA's callback request form can be used to ask about a decision letter.

Second review, judicial review and other options

If you disagree with the decision, you can ask in writing for a second administrative review by the Assistant Director of the Shawinigan National Verification and Collections Centre. The CRA asks applicants to do this before applying for judicial review.

Judicial review is in the Federal Court, using Form 301 Notice of Application and the filing fee. It generally must be filed within 30 days of the CRA's notification and follows the second review. Because that deadline is short, ask a lawyer about timing as soon as you receive the letter.

The CRA's legal basis for cancelling penalties and interest is subsection 220(3.1) of the Income Tax Act, and the request must be made on or before the day ten calendar years after the end of the taxation year.

Can you reapply, and what is your exposure?

Whether a new application makes sense depends on why the first was refused. The CRA may deny an application as incomplete if requested information or documents are not provided within a reasonable timeframe, and a disclosure is not voluntary if an audit or investigation has been initiated against you or a related taxpayer for the disclosed information. Whether you can reapply depends on your facts and the reasons given in your letter, so it is worth having a lawyer review your letter before you file again.

On exposure, the protection from prosecution and the gross negligence penalty relief apply to eligible applicants for the information disclosed. Without an accepted application you should not assume that protection applies.

The CRA also reserves the right to audit any information in a VDP application whether or not relief is granted, and if fraud or misrepresentation is found, an assessment may cover any year. The tax itself is owed regardless, since VDP relief never covers the tax.

What to do next

• Note the date of the decision letter and the notification date, since the judicial review deadline is generally 30 days.
• Identify the stated reason for denial and whether it can be fixed or disputed.
• Collect copies of everything you submitted and every CRA letter you received.
• Do not ignore the tax owing; ask about a payment arrangement if you cannot pay, though approval is not guaranteed.
• Speak with a tax lawyer before sending a second review request, filing again, or contacting the CRA about the same matter.

Frequently asked questions