Can I Use the VDP for Unreported Capital Gains in Canada?

You sold shares or cryptocurrency, made a gain, and did not report it on your tax return. Maybe you did not realize it counted, maybe the records were a mess, or maybe it simply slipped by. Now you want to fix it before the CRA finds it.

The CRA's Voluntary Disclosures Program, or VDP, is built for this kind of situation. This article explains in plain language how it generally works for unreported investment gains, what relief you might get, and what to prepare. It is general information, not advice on your file.

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

Does the VDP cover unreported gains on shares or crypto?

The VDP lets a taxpayer come forward to correct errors or omissions, such as unreported income or unfiled returns. The CRA lists not reporting or under-reporting income, and not filing a return that is now a year late, among the income tax situations that may be eligible.

Whether a particular gain is taxed as a capital gain or as business income can depend on the facts, especially for frequent crypto trading. That classification affects how the numbers are worked out, so it is worth confirming with an accountant or lawyer before you file.

The conditions you have to meet

Under the current circular, the application must be voluntary and complete, with all supporting documents. It must involve interest, penalties or both. It must include information that is at least one year past the filing due date. And it must include payment of the estimated tax owing, or a request for a payment arrangement.

A disclosure is not voluntary if an audit or investigation has already been started against you or a related taxpayer for the information you want to disclose. That includes investigations by law enforcement, securities commissions or other federal or provincial regulators, not only the CRA.

Some situations are generally not eligible, such as an application that produces a refund or no tax or penalties owing, or one where you are insolvent for the years involved.

What relief can you expect?

The VDP gives relief on penalties and interest, not on the tax itself. If the application is accepted, the CRA also will not refer the disclosed matter for criminal prosecution, and gross negligence penalties do not apply to the information disclosed.

These are the normal levels. An application is generally unprompted if the CRA has not communicated with you about the issue, or if the only contact was a general education letter. It is generally prompted if it follows a CRA communication identifying a specific error or setting a correction deadline, or follows third-party information about your non-compliance.

Relief is also limited by a ten-calendar-year window in subsection 220(3.1) of the Income Tax Act, so older years may get reduced or no relief.

What goes into the application

Your application consists of a completed, signed Form RC199, all the returns, forms and schedules needed to correct the non-compliance, and payment or a payment arrangement request for the estimated tax owing. The VDP says it will consider fully completed applications only.

• Supporting documents for the affected years, which generally cover the most recent six years, or ten years for assets or income located outside Canada.
• Years with no errors or omissions do not need to be included.
• If a representative files for you, both you and the representative must sign, and the name of any adviser who helped must be included.
• If you hold foreign property, other rules such as Form T1135 may also be involved.

Incomplete books and records are common with crypto spread across several platforms. For GST/HST applications, the CRA's memorandum says that where books and records do not exist, the applicant should make reasonable estimates, and the CRA may request additional records. That specific guidance is written for GST/HST, so ask a professional how it applies to your income tax file.

What to do next

If you are unsure about applying, you can hold a preliminary discussion with the CRA on an anonymous basis. It is informal and non-binding, and it is not an application.

• Gather exchange statements, brokerage statements, wallet records and bank records for every year affected.
• Work out which years had unreported gains and which were clean.
• Check whether you have received any CRA letter about these gains, since that affects whether you are unprompted or prompted.
• Estimate the tax owing and decide whether you can pay it or need a payment arrangement.
• Speak with a tax lawyer or accountant before submitting, because a rejected or incomplete application can leave you exposed.

Use one submission method only: online, by fax, or by mail. Applications can be submitted any time of year.

Frequently asked questions