Do You Have to Pay the Tax Owing in a Voluntary Disclosure in Canada?

Many people put off a voluntary disclosure because they fear the bill. They may owe more tax than they can pay at once, and they wonder whether the Voluntary Disclosures Program (VDP) still helps if they cannot pay in full.

The short answer is that the tax is not forgiven, but the payment requirement has some flexibility. This article explains what the CRA expects with your application, how estimated payments work, and what a payment arrangement request involves.

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

What the VDP does and does not reduce

If the application is accepted, the CRA may give penalty and interest relief and will not refer the disclosed matter for criminal prosecution, but the tax itself must still be paid in full. The CRA puts it plainly: the VDP provides relief on penalties and interest, not on the tax itself.

Think of the program as a way to reduce what you owe on top of the tax. For unprompted applications that normally means 100% relief of applicable penalties and 75% of applicable interest. For prompted applications it is up to 100% penalty relief and 25% interest relief.

Payment is a condition of a valid application

One of the conditions for a VDP application is that it include payment of the estimated tax owing or a request for a payment arrangement. The CRA repeats this as a condition of a valid application.

A complete application includes the signed Form 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. The CRA says it will consider fully completed applications only. That means you generally cannot file first and decide on payment later.

Estimating the amount usually means preparing the corrected returns first, so you can see the tax that results. An accountant can help you reach a reasonable figure.

If you cannot pay the full balance

A taxpayer who cannot pay in full may ask for a payment arrangement on the application. The CRA's approval is not guaranteed. Collections officials review each request, and approval of a payment arrangement is not guaranteed.

For GST/HST and related taxes, the same approach applies: a payment arrangement can be requested if you cannot pay in full, with no guarantee of approval. How a specific arrangement is structured depends on your finances and the CRA's review, so a lawyer or accountant can help you prepare the request.

Risks of leaving payment out

• An application without payment or a payment arrangement request does not meet the stated conditions.
• The CRA may deny an application as incomplete if requested information or documents are not provided within a reasonable timeframe.
• Relief is not available in some situations, including applications that produce a refund or no tax or penalties owing, or where there is insolvency for the years involved.
• An anonymous discussion with the CRA is not an application, and relief requires a signed RC199 with full documents and payment.

Also remember that the CRA may audit any information in the application whether or not relief is granted.

What to do next

• Prepare the corrected returns for each affected year so you can estimate the tax owing.
• Decide whether you can pay the estimate in full or need to request a payment arrangement.
• Gather evidence of your finances in case the CRA asks for more information, since collections officials review each request.
• If you are not ready to commit, consider the CRA's anonymous, non-binding pre-disclosure discussion.
• Have a lawyer or accountant review the whole application before it is sent, as the CRA considers fully completed applications only.

Once the CRA receives an application, it sends an acknowledgement letter with the effective date of disclosure. You can use the CRA's callback form to check on the application's status.

Frequently asked questions