As part of the application review for its voluntary disclosure program, the CRA may ask the taxpayer for additional information and negotiate due dates.Sean Kilpatrick/The Canadian Press
Taxpayers looking to come clean about unpaid taxes face risks under the Canada Revenue Agency’s voluntary disclosures program (VDP), as recent Federal Court of Canada cases show.
Under the VDP, the CRA will grant relief from prosecution – and, potentially, penalties and partial interest – to taxpayers who come forward voluntarily to report missing information or errors, such as failing to file returns or report income. There’s no relief from unpaid taxes under the program.
To be eligible for the VDP, the disclosure must involve the potential application of a penalty and information must be at least one year (or one reporting period) past due. In addition, the taxpayer must apply for the VDP before the CRA has taken enforcement action and must include payment of the estimated taxes owing with the application.
Finally, taxpayers must provide complete disclosure of missing or inaccurate information for all relevant tax years, even though the CRA’s ability to waive or cancel penalties and interest is limited to the preceding 10 years under the Income Tax Act. Where records no longer exist for certain tax years, taxpayers must make reasonable efforts to estimate income.
The CRA may ask the taxpayer for additional information and negotiate due dates as part of its VDP application review. If the CRA doesn’t receive information by a due date, it may deny the VDP application.
If the CRA denies an application because the taxpayer doesn’t provide information on time, it won’t consider a request for a second review and will deny any later application on the same issue.
Amanda Doucette, a tax partner with Stevenson Hood Thornton Beaubier LLP in Saskatoon, says the denial of a VDP application is “kind of like the worst nightmare,” as a taxpayer will have disclosed information to the CRA without getting the benefit of relief under the program.
Two recent Federal Court cases show different outcomes for taxpayers using the VDP.
CRA denies tardy taxpayer’s VDP application
In the May, 2025 decision, Créations Guimel Inc. vs. Canada (National Revenue), the company lost its appeal of the CRA’s decision to deny its VDP application over a failure to provide a previous year’s tax return.
In 2019, the LaSalle, Que.-based company made a VDP application for the tax years 2008-17 to report income earned during that period from investing the proceeds of a sale in 2007.
As part of its VDP application review, the CRA contacted the taxpayer’s authorized representative, a lawyer, on Oct. 5, 2022, to ask for the company’s amended tax return for 2007.
However, after a series of missed deadlines and communication issues, including a voice-mail message left by a CRA official that the lawyer said he never received, the taxpayer failed to provide the return, and the CRA denied the application on Oct. 10, 2023.
In its appeal, the company argued, in part, that its VDP application had been complete as it had provided information for the 10-year period for which the CRA could grant penalty relief. The failure to provide the 2007 return was a minor omission that the CRA shouldn’t be able to use to deny the application, it said.
However, the Federal Court judge noted the taxpayer had raised the importance of the 2007 transaction in its VDP application. The company’s argument that it didn’t provide the return because it fell outside the 10-year limitation period was “without merit,” the judge said.
Ms. Doucette says the Créations Guimel decision serves as a “harsh reminder” to tax advisors of the importance of monitoring communication from the CRA and responding by deadlines when acting on a client’s behalf, she says.
When filing a VDP application where there’s an issue dating back more than 10 years, she says she provides information and pays estimated tax for the 10-year period, while also disclosing that the issue predates that period and offering to provide additional information if requested.
The CRA can extend its audit powers to before the 10-year period when there’s evidence of misrepresentation because of neglect, carelessness or willful default. However, Ms. Doucette says she hasn’t seen the agency go beyond that period in its assessments when the taxpayer has disclosed that an issue predated the limitation period.
In the Créations Guimel decision, the CRA required the 2007 return to help it determine tax liability for the subsequent taxation years.
Court rebukes CRA’s abusive conduct
Another recent Federal Court case had a different outcome. In the September, 2024, decision, Milgram Foundation vs. Canada (Attorney General), the court quashed a decision by the CRA to assess the taxpayer for tax years before the years for which the taxpayer had made a voluntary disclosure, calling it an abuse of process.
In 2015, Milgram Foundation, a trust based in Liechtenstein, applied under the VDP for the 2003-14 taxation years after it determined that it might be a deemed Canadian tax resident. Up until 2015, it had never filed a Canadian tax return.
In December, 2015, the CRA accepted the VDP and issued notices of assessment for 2003-14. The following year, the agency initiated a second audit of the 2003-14 taxation years but found no errors in the returns.
However, in a September, 2018, letter to the taxpayer, the CRA said that during a review of the taxpayer’s filings, it had found undisclosed investment income and proposed to reassess the 1998-2002 taxation years. The CRA said the reassessment related to “misrepresentation” attributable to “neglect, carelessness or willful default” on the part of the taxpayer.
The taxpayer sought a judicial review, asking the court to consider whether the CRA’s decision was unreasonable and an abuse of process.
In her review, the Federal Court judge found the CRA had abused its power by “impugning, without any justification, misrepresentation” on the part of the taxpayer. The CRA sought to assess the taxpayer for 1998-2002 based on information the taxpayer had already disclosed at the time of the VDP application, which the agency had approved.
The CRA is appealing the decision.
Ms. Doucette says she agrees with the court’s finding, saying the CRA’s decision to reassess the taxpayer for a historic tax issue unrelated to the one it had disclosed was “somewhat unconscionable.”
Had the Milgram Foundation not voluntarily disclosed, the CRA would not have been able to audit the earlier years and “it never would have found this old stuff,” Ms. Doucette says.
As a taxpayer, “you want to have certainty that if you’ve disclosed, and you believe it’s a complete disclosure, the CRA can’t come back several years later and use that against you to look back to previous years,” she says.