Voluntary Disclosures and CRA Audits
Many taxpayers discover past tax errors only after receiving correspondence from the Canada Revenue Agency (CRA). At that point, one of the first questions is whether the issue can still be resolved through the Voluntary Disclosures Program (VDP) or whether the matter has already become a CRA audit.
The distinction is critical. A successful voluntary disclosure may provide relief from penalties, interest and potential criminal prosecution. Once the CRA has commenced enforcement action, however, those protections may no longer be available.
A Toronto tax lawyer can help determine whether a taxpayer remains eligible for the Voluntary Disclosures Program and whether immediate action is required.
What Is a Voluntary Disclosure?
The Voluntary Disclosures Program allows taxpayers to correct inaccurate tax filings, report previously unreported income, file overdue returns, or disclose omitted information before the CRA discovers the issue.
When accepted into the program, taxpayers must generally pay the tax owing and some interest. However, the CRA may provide relief from certain penalties and potential criminal prosecution.
Common voluntary disclosures involve:
- unreported foreign income;
- unfiled T1, T2, GST/HST, or payroll returns;
- omitted investment income;
- unreported cryptocurrency transactions;
- foreign reporting failures involving T1135 forms;
- shareholder benefits; and
- errors carried forward over multiple taxation years.
What Is a CRA Audit?
A CRA audit is an enforcement process designed to verify compliance with Canada’s tax laws.
During an audit, the CRA may review bank statements, accounting records, invoices, contracts, corporate records, foreign assets, cryptocurrency transactions, and other financial information.
The CRA may also issue formal requirements for information and conduct interviews with taxpayers and third parties.
Unlike a voluntary disclosure, a CRA audit is adversarial. The CRA is attempting to determine whether additional tax, penalties, or other assessments should be issued.
Why Timing Matters
A disclosure must be voluntary.
This means that the CRA cannot already possess information that effectively puts the taxpayer on notice that the issue is under review.
For example, a taxpayer who receives an audit letter requesting information about unreported rental income will generally not be able to submit a voluntary disclosure regarding that rental income afterward.
Similarly, if the CRA has already begun auditing a corporation, related shareholders may lose access to the Voluntary Disclosures Program for issues connected to the audit.
Whether a disclosure remains voluntary is often one of the most heavily disputed aspects of a VDP application.
Can You File a Voluntary Disclosure After CRA Contact?
Sometimes.
The answer depends on the nature and scope of the CRA’s contact.
Not every CRA letter prevents a voluntary disclosure. For example, routine correspondence, processing reviews, or requests relating to unrelated issues may not necessarily eliminate eligibility.
However, once the CRA begins examining the specific issue being disclosed, the disclosure may no longer qualify.
Determining whether the CRA has commenced enforcement action often requires a careful review of the facts.
A Toronto tax lawyer can assess whether a disclosure remains viable before information is submitted to the CRA.
Why Taxpayers Wait Too Long
Many taxpayers delay seeking advice because they assume:
- the CRA will not discover the issue;
- they can correct the problem later;
- the issue is too small to matter; or
- they should wait until the CRA contacts them.
These assumptions can be costly.
Once an audit begins, taxpayers may lose access to important relief that would otherwise have been available through the Voluntary Disclosures Program.
In many cases, the difference between acting before and after CRA contact can be substantial.
Kirshen Tax Law Can Help
Determining whether a matter qualifies for the Voluntary Disclosures Program often requires a detailed review of the facts, the taxpayer’s filing history, and any prior CRA contact.
Kirshen Tax Law is a Toronto tax law firm that assists taxpayers with voluntary disclosures, CRA audits, objections, and Tax Court appeals. If you have unreported income, unfiled tax returns, foreign reporting issues, or other tax compliance concerns, contact us for a free consultation with a Toronto tax lawyer.
Jeff Kirshen BA, JD (CA), JD (US)
Tax Lawyer | Founder, Kirshen Tax Law
Disclaimer
The content on this website, including articles and blog posts, is provided for general informational purposes only. It reflects the laws and regulations as of the date of publication, which may have since changed. This content is not intended to serve as legal advice and should not be relied upon as such. Tax laws and situations can be complex and unique to each individual. The information provided may not apply to your specific circumstances. For personalized advice regarding your tax or legal matters, we recommend consulting a qualified lawyer.