What Is The CRA's GST/HST Voluntary Disclosures Program?

The Canada Revenue Agency's (CRA) Voluntary Disclosures Program (VDP) allows taxpayers to voluntarily correct errors or omissions in their tax affairs, including in particular GST/HST, before the CRA takes compliance action. The program is intended to encourage taxpayers to come forward and rectify past non-compliance while promoting fairness within the tax system.

If relief is granted under the VDP, taxpayers remain liable for all GST/HST taxes owing; however, they may receive relief from penalties and a reduction of interest, and they will generally not be referred for criminal prosecution regarding the matters disclosed. The VDP is not intended to reward deliberate non-compliance or place non-compliant taxpayers in a better position than those who have complied with their obligations.

Types of GST/HST Relief Available Under the VDP

Where a disclosure is accepted, the CRA may provide:

• Relief from applicable penalties;
• Partial relief from interest charges; and
• Protection from criminal prosecution concerning the disclosed matters.

Additional relief may be available for eligible GST/HST wash transactions pursuant to CRA administrative policy set out in GST/HST Memorandum 16-3-1.

Eligibility Requirements for a GST/HST VDP Application

Any taxpayer may apply to the VDP provided that the application satisfies the following conditions:

1. The application is voluntary.
   The disclosure must be made before the CRA or another regulatory authority has initiated an audit, investigation, or enforcement action concerning the issue being disclosed.
2. The disclosure relates to overdue obligations.
   The information disclosed must pertain to a reporting period that is at least one filing period past due.
3. The disclosure involves potential penalties or interest.
   The application must address an error or omission that could result in penalties, interest, or both.
4. Complete information is provided.
   The taxpayer must disclose all relevant facts and provide all supporting documentation, while responding fully and promptly to any CRA requests for additional information.
5. Payment arrangements are addressed.
   The taxpayer must either remit the estimated tax owing or request a payment arrangement with the CRA.

Certain matters are generally ineligible for VDP relief, including requests solely to increase GST/HST input tax credits or rebates, requests for relief from penalties or interest already assessed, changes to elections under tax legislation, and matters affected by insolvency proceedings.

Anonymous Pre-Disclosure Discussions with the CRA

Taxpayers who are uncertain about submitting an application may participate in anonymous, informal discussions with CRA officers. These discussions provide insight into the VDP process, potential risks of continued non-compliance, and the relief that may be available. Such discussions are non-binding and do not constitute a formal application.

Determining Whether a GST/HST VDP Application Is Voluntary or Prompted

The CRA categorizes disclosures as either unprompted or prompted.

An unprompted application generally occurs where no CRA communication has identified the compliance issue before the disclosure is made.

A prompted application generally arises when the taxpayer has already received communication from the CRA regarding a specific compliance issue, or where the CRA has obtained information from third parties indicating possible non-compliance by the taxpayer or a related person.

Levels of GST/HST Relief: Unprompted vs. Prompted Applications

The amount of relief available depends on whether the application is unprompted or prompted:

• General Relief (Unprompted Applications):
  • 100% relief from applicable penalties.
  • 75% relief from applicable interest.
• Partial Relief (Prompted Applications):
  • Up to 100% relief from applicable penalties.
  • 25% relief from applicable interest.
• Wash Transaction Relief:
  • 100% relief from applicable penalties and interest for qualifying GST/HST wash transactions.

Where relief is granted, the CRA will also provide protection from criminal prosecution and will not assess gross negligence penalties on the disclosed information.

Required Information and Documentation for a GST/HST VDP Application

Applications must be submitted using Form RC199, Voluntary Disclosures Program (VDP) Application.

The taxpayer must disclose all known errors and omissions and provide supporting documentation necessary to correct the non-compliance. Generally, documentation relating to the most recent four reporting periods or years (consistent with the CRA's normal four-year reassessment period for GST/HST) should accompany the application, although the CRA may request additional records for earlier periods, particularly where fraud or wilful default is suspected.

Where books and records are unavailable, taxpayers must make reasonable efforts to provide estimates and supporting information. Taxpayers must also disclose the identity of any advisor, tax professional, or promoter who assisted with the matters being disclosed.

Failure to provide sufficient information or to respond adequately to CRA requests may result in denial of the application.

“Given these risks, taxpayers should seek advice from an experienced Canadian tax lawyer before making a GST/HST VDP application. A tax lawyer can assess eligibility, identify potential exposure, ensure the disclosure is complete and accurate and ready if a future appeal is required, and provide the benefit of solicitor-client privilege, helping taxpayers minimize future disputes and achieve the best possible outcome.” — David Rotfleisch, Certified Specialist in Taxation and Canadian Tax Lawyer

GST/HST Payment Requirements Under the VDP

To obtain relief, the taxpayer must either pay the estimated taxes owing or request a payment arrangement. Approval of a payment arrangement is not automatic and remains subject to review by CRA collections officials.

CRA Review and Decision Process for GST/HST VDP Applications

Once a VDP application is received, the CRA assigns an Effective Date of Disclosure (EDD). If relief is ultimately granted, the relief applies up to the EDD.

The CRA will review whether the taxpayer satisfies all eligibility requirements, including voluntariness, completeness of disclosure, supporting documentation, and payment obligations. Following its review, the CRA will issue a written decision confirming whether relief has been granted and, if so, the extent of that relief.

For complex matters, the CRA may seek technical assistance from specialized areas within the Agency before rendering a decision.

Pro Tax Tip: Why Legal Representation Is Critical in a GST/HST VDP Application

Taxpayers should understand that acceptance into the Voluntary Disclosures Program ("VDP") does not prevent the Canada Revenue Agency ("CRA") from subsequently reviewing or auditing the information disclosed. The VDP's role is limited to determining eligibility for penalty and interest relief and does not constitute the CRA's acceptance of a taxpayer's reporting positions.

Accordingly, other areas of the CRA may later reassess taxes, interest, and penalties for the disclosed periods or additional taxation years. Moreover, where the CRA identifies fraud or a misrepresentation attributable to neglect, carelessness, or wilful default, the normal reassessment limitation periods may not apply, allowing the CRA to reassess at any time.

“Taxpayers should not delay seeking professional advice once they become aware of a GST/HST reporting error or omission. The longer a taxpayer waits, the greater the risk that the CRA may uncover the issue through its own compliance initiatives, third-party information sharing, or audit programs, which could significantly reduce or eliminate the relief otherwise available under the VDP.” — David Rotfleisch, Certified Specialist in Taxation and Canadian Tax Lawyer

Examples of GST/HST Voluntary Disclosures

Example 1 – Real Estate Developer Fails to Self-Assess GST/HST

A real estate developer constructs a residential complex and later determines that GST/HST should have been self-assessed under the self-supply rules in section 191 of the Excise Tax Act when the property was first occupied as a rental property. The developer voluntarily discloses the error before the CRA commences an audit. Although acceptance into the VDP may provide relief from penalties and reduce applicable interest, the CRA may still subsequently review the valuation used to calculate the self-supply, determine that a different fair market value applies, and reassess the GST/HST payable accordingly. Legal representation helps ensure that both the disclosure and the underlying reporting position are properly supported.

Example 2 – Business Fails to Collect GST/HST on Taxable Sales

A consulting corporation discovers that, for several years, it incorrectly treated certain taxable consulting services as exempt and therefore failed to charge, collect, and remit GST/HST from its customers. Before the CRA contacts the corporation, it submits a VDP application correcting the reporting errors. Even if relief is granted, the CRA may later audit the business to determine whether additional taxable supplies were omitted, whether the reported sales are complete, and whether the GST/HST calculations are accurate. A carefully prepared voluntary disclosure can significantly reduce the risk of unnecessary disputes during any subsequent audit.

Example 3 – Incorrect Input Tax Credit Claims

A corporation discovers that it claimed substantial input tax credits ("ITCs") for expenses that were partly personal in nature or were unsupported by proper documentation. The corporation files a voluntary disclosure to correct the overstated ITCs. Although the VDP may provide relief from penalties and interest if the application is accepted, the CRA may subsequently examine the corporation's books and records to determine whether additional ITCs should be denied or whether similar errors exist in other reporting periods. A Canadian tax lawyer in section 191 of the Excise Tax Act can assist in identifying all affected reporting periods and ensuring that the disclosure is complete before it is submitted.

Example 4 – Owner-Builder Overclaims the GST/HST New Housing Rebate

An individual builds their own home and claims the GST/HST New Housing Rebate for owner-built houses. The individual later determines that the rebate was overstated — for example, because the rebate calculation included ineligible construction costs, the home was not used as the individual's (or a qualifying relation's) primary place of residence within the time required by the Excise Tax Act, or the fair market value of the completed home exceeded the statutory rebate threshold.

Before the CRA reviews the rebate claim, the individual files a VDP application to correct the overstated rebate. Although acceptance into the VDP may provide relief from penalties and reduce applicable interest, the CRA may still audit the rebate calculation, the supporting construction invoices, and whether any corresponding provincial new housing rebate was also overstated. A carefully prepared disclosure, assisted by a Canadian tax lawyer, helps ensure that the owner-builder's exposure is accurately quantified before the rebate is reassessed.

Frequently Asked Questions: GST/HST Voluntary Disclosures Program

Will the CRA forgive the taxes I owe if my Voluntary Disclosures Program application is accepted?

No. The Voluntary Disclosures Program does not eliminate the underlying tax liability. Even if a taxpayer is accepted into the VDP, all taxes owing must still be paid. However, depending on the circumstances, the CRA may provide relief from penalties, reduce applicable interest, and refrain from pursuing criminal prosecution in relation to the disclosed non-compliance.

Can I apply to the Voluntary Disclosures Program after the CRA has contacted me about a tax issue?

Possibly. A taxpayer may still qualify for relief under the VDP after being contacted by the CRA, but the application will generally be considered a "prompted" disclosure rather than an "unprompted" disclosure. Prompted disclosures typically receive a lower level of interest relief. If the CRA has already commenced an audit, investigation, or other enforcement action concerning the issue being disclosed, the application may no longer qualify for relief. Taxpayers should seek legal advice as soon as they become aware of a potential compliance issue.

Can a taxpayer make an anonymous inquiry before submitting a Voluntary Disclosures Program application?

Yes. The CRA permits taxpayers or their representatives to participate in anonymous pre-disclosure discussions before filing a formal application. These discussions allow taxpayers to obtain general guidance regarding the VDP process, eligibility requirements, and the potential consequences of continued non-compliance. However, the discussions are informal and non-binding, and they do not reserve a taxpayer's place in the program or guarantee acceptance into the VDP.

What happens if my Voluntary Disclosures Program application is incomplete?

A VDP application must contain complete and accurate information concerning all relevant errors, omissions, and supporting documentation. If the CRA determines that an application is incomplete or that the taxpayer has failed to provide requested information within the prescribed timelines, the application may be denied. In some cases, an incomplete disclosure may also increase the risk of further CRA scrutiny or audit activity. Taxpayers should therefore ensure that all relevant information is disclosed before submitting an application.

Does acceptance into the Voluntary Disclosures Program prevent the CRA from auditing me in the future?

No. Acceptance into the VDP does not prevent the CRA from subsequently reviewing or auditing the information disclosed. The program only provides relief from certain penalties, interest, and potential criminal prosecution where applicable. The CRA retains the authority to verify the accuracy of the disclosure, reassess taxes owing, and review related taxation years. As a result, taxpayers should ensure that their disclosure is complete, accurate, and supported by appropriate documentation before applying for relief.

Can I correct multiple years of tax returns in a single Voluntary Disclosures Program application?

Yes. A taxpayer may disclose errors or omissions spanning multiple taxation years in a single VDP application. In fact, the CRA generally expects taxpayers to correct all known instances of non-compliance rather than selectively disclosing only certain years. Failing to disclose all relevant taxation years or issues may result in the CRA determining that the application is incomplete, potentially jeopardizing eligibility for relief under the VDP.

Should I retain a Canadian tax lawyer before submitting a Voluntary Disclosures Program application?

In many cases, yes. A properly prepared VDP application requires careful consideration of eligibility requirements, supporting documentation, and the legal implications of the disclosure. Communications with an accountant are generally not protected by solicitor-client privilege, whereas confidential communications with a Canadian tax lawyer typically are. A tax lawyer can also help assess whether a disclosure is likely to qualify as unprompted or prompted, negotiate with the CRA where appropriate, and reduce the risk of making admissions or providing unnecessary information that could adversely affect the taxpayer during a subsequent audit or reassessment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.