Voluntary Disclosure After a CRA Audit Starts: Your Options in Canada

You know there is income you did not report, and then a letter or call from the CRA arrives. Many people at this point ask whether they can still come forward voluntarily.

This article does not decide that question for you, because it turns on what the CRA has contacted you about, what is unreported and the timing. It explains what an audit involves, what is at stake, and the options that remain open, so you can have a better conversation with a lawyer or accountant.

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

Why timing matters

A voluntary disclosure is, as the name suggests, meant to be voluntary. Whether your disclosure would still be treated that way after the CRA has made contact depends on the specific facts, including what the CRA has asked about and whether it relates to the income you want to disclose. A lawyer or accountant should confirm this before you send anything.

Do not make partial statements to the auditor in the meantime that you have not thought through. At the same time, do not ignore deadlines, because those carry their own consequences.

What the CRA can do once an audit has started

• An auditor contacts you by mail or phone, examines your records on site or at a CRA office, and the outcome is no change, a reassessment owing more tax, or a refund.
• An authorized person may inspect books, records and property, enter premises where a business is carried on or records are kept, and require reasonable assistance and answers to proper questions.
• An auditor may enter a dwelling-house without the occupant's consent only under a warrant.
• A requirement for documents must state a reasonable time to comply.
• If you do not comply, a judge can order compliance on the Minister's application, and refusing the order can be found to be contempt of court.

A compliance order for information or documents is not available where they are protected by solicitor-client privilege. The CRA is also not bound by the return or information you supplied and may assess tax even where the information was inaccurate.

What is at stake

Tax owing on unreported income carries interest at the prescribed rate for as long as it remains unpaid. The rate for 1 October to 31 December 2026 is 7%, and it changes quarterly.

A knowing or grossly negligent omission can lead to a penalty of the greater of $100 and 50% of the amounts calculated under s. 163(2). The Minister bears the burden of establishing the facts that justify a penalty in an appeal.

For an individual, the normal reassessment period ends three years after the earlier of the date of the original notice of assessment and the date of the original notification that no tax is payable. If there was a misrepresentation due to neglect, carelessness or wilful default, or fraud, there is no fixed time limit. A reassessment made after the normal period because of misrepresentation or fraud is still allowed only to the extent it can reasonably be regarded as relating to the matter that triggered the exception.

Options that remain after contact

After an audit you have 30 days to agree or disagree with the auditor's written proposal; this is CRA practice, not a statutory deadline. Before objecting formally, you can contact the auditor and then the auditor's team leader, and the auditor can estimate any amount owing before a notice is issued, which may help limit interest.

If you disagree with the reassessment, an individual must serve a notice of objection by the later of one year after the filing-due date and 90 days after the notice of assessment was sent. A Tax Court of Canada appeal follows after the Minister confirms or reassesses, within 90 days of that notice.

You may also ask the CRA to cancel or waive penalties and interest, citing circumstances such as extraordinary events, CRA actions or financial hardship. Paying in full stops further interest, and interest is refunded if relief is later granted.

What to do next

• Keep every letter and note the date and name of each CRA contact.
• Do not destroy or alter any records.
• Note every deadline in a CRA requirement or proposal letter.
• Speak with a lawyer or accountant before you reply or disclose anything, so they can assess whether a voluntary disclosure is still available.
• Consider choosing a representative; you may do so, but you remain legally responsible.

Frequently asked questions