Can I Disclose Unreported Foreign Income or an Offshore Account in Canada?

Many people end up with foreign income they never reported in Canada, or an overseas account they forgot to mention on a return. Once you notice, the worry is what happens if the CRA finds it first.

The Voluntary Disclosures Program is the CRA's route for coming forward. This article explains whether it covers foreign income and accounts, what the CRA expects, and what to do before you apply.

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

Does the VDP cover foreign income and accounts

The VDP lets you come forward to correct errors or omissions, such as unreported income or unfiled returns. If your application is accepted, the CRA may give penalty and interest relief and will not refer the disclosed matter for criminal prosecution.

The CRA lists not reporting foreign income taxable in Canada among the income tax situations that may be eligible. For foreign property, the CRA says the VDP may be available if conditions are met, and you must file a valid disclosure to qualify.

Conditions you must meet

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

• Voluntary: it is not voluntary if an audit or investigation has been initiated against you or a related taxpayer for the disclosed information, including by law enforcement, securities commissions or other regulators.
• Complete: the CRA says it will consider fully completed applications only.
• Funded: payment, or a request for a payment arrangement, is a condition, and approval of an arrangement is not guaranteed.

Relief you can expect and what stays owing

Unprompted applications normally receive 100% relief of the applicable penalties and 75% relief of the applicable interest. Prompted applications normally receive 25% relief of the applicable interest and up to 100% relief of the applicable penalties.

The VDP gives relief on penalties and interest, not on the tax itself, so tax on the foreign income must be paid. Eligible applicants are protected from prosecution for the disclosed information.

Penalties for failing to file Form T1135 by the deadline may otherwise be relieved only under the taxpayer relief provisions on written request. Also, the reassessment period for foreign property is extended by three years if income from specified foreign property was not reported and Form T1135 was not filed, not filed on time, or filed inaccurately.

What the application involves

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. Supporting documents generally cover the most recent six years, or ten years for assets or income located outside Canada. Years with no errors or omissions need not be included.

The CRA may audit any information in your application whether or not relief is granted, and if it finds fraud or misrepresentation it may assess any year. That is why the disclosure needs to be accurate and complete.

What to do next

• Collect statements, slips and records for the foreign income and accounts, for every affected year.
• Note any contact you have had from the CRA about the issue.
• Estimate the tax owing and think about how you will pay it or request an arrangement.
• Consider an anonymous, informal and non-binding discussion with the CRA if you are unsure about applying.
• Speak with a tax lawyer or accountant before filing, since foreign property rules can be complex.

Frequently asked questions