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

Finding out that your Voluntary Disclosures Program (VDP) application was denied, or found invalid, is stressful. You came forward to fix a problem, and now it may feel as if you are worse off.

This article explains why applications are refused, what the decision letter tells you, which review routes exist, and what to consider next. Outcomes depend on the facts, so treat it as a map rather than a prediction.

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

Why an application may be denied

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 for the disclosed information.
• The application would produce a refund, or no tax or penalties owing.
• It sought relief on penalties or interest already assessed, or to make or alter an election.
• It lacked payment of the estimated tax owing or a payment arrangement request. Approval of a payment arrangement is not guaranteed.

An audit or investigation against you or a related taxpayer can make a disclosure not voluntary, and this includes investigations by law enforcement, securities commissions or other federal or provincial regulators, not just the CRA. The application must also include information at least one year past the filing due date.

What a complete application includes

The application package is the completed, signed RC199; all returns, forms and schedules needed to correct the non-compliance; and payment, or a request for a payment arrangement, for the estimated tax owing. Use one submission method only: online, fax or mail. Applications can be submitted any time of year.

If a representative submits for you, both you and the representative must sign the application. The representative must be authorized on file with the CRA, or authorization documents must be included. The name of any adviser who helped must be included.

Income tax applications must include supporting documents for the affected years. Records generally cover the most recent six years, or ten years for assets or income located outside Canada, and years with no errors or omissions need not be included. For GST/HST, supporting documents are required for the most recent four years. Where books and records do not exist, you should make reasonable estimates.

Reading the decision letter

The CRA 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. Read it closely, since the reason decides which route makes sense.

Keep in mind that a partly successful result is possible: an application treated as prompted receives 25% interest relief and up to 100% penalty relief, rather than the unprompted levels. If you only disagree with the classification, say so in any review request.

An application is generally unprompted if the CRA has not communicated with you about the compliance issue, or if the only contact was a general education letter. It is generally prompted if it follows CRA communication identifying a specific error or setting a correction deadline, or follows third-party information about your non-compliance. A CRA letter about a specific issue does not by itself end eligibility; the CRA treats such an application as prompted if you are not under audit or investigation.

Review options

If you disagree with a VDP 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, speak to a lawyer promptly.

There is no right of objection to a VDP decision, so you cannot object to penalty and interest assessed under subsection 220(3.1) of the Income Tax Act. If you are not eligible, other options include the taxpayer relief provisions.

What a rejection means for you

The tax you owe does not go away. Protection from prosecution for the disclosed information applies to eligible applicants. The CRA may audit information you provided whether or not relief is granted. If it finds fraud or misrepresentation, an assessment may cover any year.

VDP relief covers penalties and interest, not the tax itself, so tax owing must be paid. Relief is also limited by the ten-calendar-year window in subsection 220(3.1) of the Income Tax Act, so older years may get reduced or no relief.

If the application was found invalid rather than refused on the merits, a lawyer can advise whether the problem can be fixed and whether a fresh application is possible. A taxpayer who already received relief must stay compliant, and a later application may be considered if the circumstances were beyond their control or concern a different matter.

What to do next

• Note the date of the CRA notification, because the judicial review window runs from it.
• Read the stated reason and compare it with your file.
• Use the CRA callback form if you need to ask about a decision letter or application status.
• Keep paying or arranging payment for the tax owing, and keep records.
• Get advice from a lawyer or accountant before choosing between second review, judicial review or taxpayer relief.

Frequently asked questions