Tax Insights: Revised Voluntary Disclosures Program applies March 1, 2018 – Act fast

December 19, 2017

Issue 2017-50

In brief

Information Circular – IC00-1R6 – Voluntary Disclosures Program (VDP), which was recently released by the Canada Revenue Agency (CRA), significantly tightens the VDP for applications received after February 28, 2018. Therefore, taxpayers should act now to benefit from the existing program.

Key changes to the VDP include:

  • the introduction of two “tracks” of disclosures:
    • a Limited Program when there is intentional conduct to be non-compliant or for corporations with gross revenue exceeding $250 million in at least two of their last five taxation years and any related entities – requires participants to waive their right to object and appeal in respect of the issue disclosed
    • a General Program when the limited program does not apply
  • replacing the “no-name” disclosure with a new pre-disclosure discussion service
  • referral of transfer pricing applications to the Transfer Pricing Review Committee
  • specialist review of complex issues or large dollar amounts
  • payment of the estimated tax at the time of the VDP application
  • disclosure of the identity of an advisor who assisted the taxpayer in respect of the non-compliance
  • cancellation of previous relief if a VDP application was incomplete due to a misrepresentation

In detail


The VDP under the Income Tax Act allows taxpayers to correct previous non-compliance. IC00-1R5 describes the manner in which the CRA administers the VDP for applications made before March 1, 2018. 

In response to the recommendations of the Standing Committee on Finance and the report of the Offshore Compliance Advisory Committee1 – which commented on the perceived shortcomings of the VDP – in June 2017, the CRA released, for discussion purposes, draft IC00-1R6. The draft IC proposed significant changes1 to the VDP and was to apply starting January 1, 2018. 

IC00-1R6, released by the CRA on December 15, 2017, finalizes the changes to the program and applies to applications received after February 28, 2018.

PwC observes

For the existing VDP to apply, the CRA must receive the complete Voluntary Disclosure application, including the taxpayer’s name, by February 28, 2018. 

Taxpayers that previously submitted a "no-name" Voluntary Disclosure should consider providing their name before February 28, 2018, to ensure they qualify under the existing VDP.

Two tracks

IC00-1R6 introduces two tracks for income tax disclosures – a Limited Program and a General Program. 

Limited Program 

In general, the Limited Program provides limited relief for VDP applications when there is an element of intentional conduct to be non-compliant on the part of the taxpayer or a closely related party. 

The CRA will determine whether an application should be processed under the Limited Program case-by-case and may consider the following factors:

  • efforts were made to avoid detection through the use of offshore vehicles or other means
  • the dollar amounts involved
  • the number of years of non compliance
  • the sophistication of the taxpayer
  • the disclosure is made after an official CRA statement regarding its intended specific focus of compliance (e.g. the launch of a compliance project or campaign) or following broad-based CRA correspondence (e.g. a letter issued to taxpayers working in a particular sector about a compliance issue)

Generally, applications by corporations with gross revenue exceeding $250 million in at least two of their last five taxation years, and any related entities, will be considered under the Limited Program.

The relief available under the Limited Program is significantly curtailed. While relief from criminal prosecution is available, interest relief is not, nor is relief from penalties other than gross negligence penalties. 

To be granted relief under the Limited Program, the taxpayer must waive their rights to object and appeal relating to the matter disclosed in the VDP application and any related assessment of taxes. 

However, this waiver will not extend to assessments that include a calculation error or that relate to a characterization issue or an issue other than the matter disclosed in the VDP application.

PwC observes

When compared to the draft IC, the CRA has softened its approach with respect to large corporations (gross revenue exceeding $250 million). These taxpayers will now qualify for the Limited Program, which provides limited penalty relief, as described above, but no interest relief. 

It is possible that the CRA will take a very broad approach to determining what is a large corporation. For example, it could take a consolidated view of all related entities in determining whether the $250 million gross revenue threshold is met.

General Program

The General Program will generally apply when the Limited Program does not. Under the General Program, taxpayers will not be referred for criminal prosecution related to the information being disclosed. Further, they will not be charged penalties (subject to a limitation period) and may be granted partial interest relief.

PwC observes

IC00-1R6 seems to allow "sophisticated taxpayers" to correct reasonable errors under the General Program. We assume that the sophisticated taxpayers refers to large corporations. It remains to be seen how the CRA will administer this in practice.

When VDP relief will not be considered

In addition to the circumstances described in IC00-1R5, IC00-1R6 includes one additional circumstance in which VDP relief will not be considered – “applications that depend on an agreement being made at the discretion of the Canadian competent authority under a tax treaty provision.”

IC00-1R6 confirms that, when the VDP application does not qualify for VDP relief, a taxpayer "may" still qualify for penalty and interest relief under the taxpayer relief provisions.

Pre-disclosure discussions 

Taxpayers who are uncertain if they want to proceed with a VDP application can participate in preliminary discussions with a CRA official about their situation anonymously to gain insight into the VDP process, a better understanding of the risks involved in remaining non-compliant, and the relief available under the VDP. 

These discussions will be informal, non-binding and can occur before the taxpayer’s identity is revealed. For complex technical reporting issues or questions, taxpayers will be referred to a CRA official in a specialized audit area. 

Unlike the existing “no-name” disclosure rules, IC00-1R6 cautions that these discussions do not constitute acceptance into the VDP. Also, they do not affect the CRA’s ability to audit, penalize, or refer a case for criminal prosecution.

PwC observes

The existing VDP allows a "no-name" disclosure so that taxpayers can determine the merits of making a VDP, providing full coverage from the initial date of the disclosure. In comparison, the new pre-disclosure discussion process does not provide any VDP coverage.

Transfer pricing applications

Because of their complexity, VDP applications relating to transfer pricing matters will be referred to the Transfer Pricing Review Committee for their consideration. 

Alternatively, taxpayers can send their applications directly to this committee.

Payment of estimated tax 

Under the existing system, valid disclosures are those that are complete, voluntary, more than one year past due and involve the application of a penalty. IC00-1R6 introduces a new condition that must be met to qualify for relief – the VDP application must include payment of the estimated tax owing. 

A taxpayer that is unable to pay the estimated tax in full and provides evidence of this inability, may request to be considered for a payment arrangement in which case security may be required. 

The takeaway

IC00-1R6 makes some sweeping changes to the administration of the VDP. Many of the changes appear to be aimed at limiting the benefits of a program that was viewed by some as an overly generous amnesty program that rewarded non-compliance. In particular, the changes target large corporations (i.e. those with gross revenue exceeding $250 million in at least two of their last five years).

If you are contemplating applying under the VDP, file your application before March 1, 2018, to avoid being subject to the tighter rules. Taxpayers applying after February 28, 2018, may receive less generous relief.

Paradoxically, the decision made by the Minister of National Revenue to restrict access to the VDP may lead to less disclosures and, correspondingly, a reduced level of overall compliance and reduced revenue from the program.

The changes also may have the unintended effect of discouraging the use of the VDP to identify errors and omissions, forcing the CRA to dedicate additional audit resources to identify non-compliance. 


[1.]  See our Tax Insights:
       Voluntary Disclosures Program in jeopardy
       Voluntary Disclosures Program: Drastic changes underway


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