5- Voluntary disclosure

Every year, taxpayers are required to file a tax return and calculate their income taxes payable. Taxpayers who knowingly, or in circumstances amounting to culpable conduct, do not comply with the tax laws in their return run a significant risk of being charged penalties when this failure to comply is discovered.

Taxpayers who find themselves in such a situation are encouraged to make a voluntary disclosure to correct the incorrect or incomplete information, or to provide information that had not been previously reported. Two tracks have been created for income tax disclosures, the General Program and the Limited Program. Generally, any application where there is an element of intentional conduct on the part of the taxpayer or a closely related party will be processed under the Limited Program and all others will be processed under the General Program.

In all cases, taxpayers will not be referred for criminal prosecution with respect to the disclosure and are required to pay the taxes due and some or all of the interest. Under the General Program, taxpayers will not be charged penalties and partial interest relief may be provided whereas under the Limited Program, taxpayers are only exempted from gross negligence penalties, other penalties and interest will apply.

In Quebec, there are two new types of voluntary disclosures, those relating to QST wash transactions and those relating to property transfer fees. Under the program, the ARQ will waive the penalties and interest for QST wash transactions whereas, in the case of a disclosure regarding property transfer fees, it can waive a portion of the special duties.⁸

For such disclosure to be valid:  

• It must be voluntary and result from an initiative taken by the taxpayer, and not because the taxpayer is aware of an audit, examination, investigation or other measure undertaken by the CRA or another tax authority;
• There must be full disclosure of all incorrect, incomplete or missing information;
• It must cover information for which a penalty could be applied;
• It provides information that is at least more than one year late;
• It must include payment of the estimated tax owing.

⁸ The waiver is limited to 1/6 of the applicable duties.