What Happens After a Voluntary Disclosure is Filed
EXECUTIVE SUMMARY
A Canada Revenue Agency Voluntary Disclosure can take considerable time, but understanding what happens after filing can make the process less uncertain.
CRA establishes your Effective Date of Disclosure.
CRA reviews your disclosure for eligibility and completeness.
CRA determines whether your disclosure is prompted or unprompted.
You eventually receive Notices of Reassessment.
INTRODUCTION
Filing a Voluntary Disclosure (“VD”) with the Canada Revenue Agency (“CRA”) brings mixed emotions for most taxpayers. You will feel relief because you have completed a necessary step in resolving your tax issues. But you also feel anxious because you have put yourself in the CRA’s spotlight and do not know how they will respond.
The anxiety is especially challenging because you must endure it for so long: individuals have reported that it takes between 12 and 18 months to complete a VD. Our experience is that it takes more than a year for CRA to respond to most VDs and for some, it’s closer to two years.
In this article, we try to quell some of your anxiety by explaining the exact steps that will occur between you filing your VD and CRA completing the process. We have learned from clients that the more informed they are about the process, the easier it is for them to put the uncertainty out of their mind while they wait for the outcome.
WHAT’S NEXT?
After submitting your VD to the CRA, you may be left wondering what happens to your application and how long the process will take. While every disclosure is different, there is a general process CRA follows after receiving your application.
Step 1: CRA will provide your Effective Date of Disclosure
Once CRA receives your VD, they will issue a letter setting the Effective Date of Disclosure (“EDD”). The EDD is the day from which your VD protects you from any CRA action. For example, if CRA begins an audit the day after your EDD, your VD is still valid, and CRA cannot prosecute you or assess you penalties for the errors and omissions you included in your VD.
It typically takes CRA 30 to 60 days to issue the letter, but the EDD will still be the day CRA received the VD, not the day they send the letter. If your VD was filed electronically, the EDD will be the same day it was filed.
While the EDD protects you against future CRA action, CRA’s EDD letter does not guarantee that CRA accepts your VD. Confirmation of CRA’s acceptance comes later.
Step 2: CRA triages your VD
After CRA sets the EDD, they perform an initial triage of your VD. During their first review, they will ensure your VD is complete, contains the required information, and appears to meet the basic requirements of a valid VD. For example, at this time, CRA will check to see if they have already begun an audit or investigation about the issues you are disclosing.
CRA also assesses the complexity of your disclosure, considering the monetary amounts involved, the number of years affected, and the type of errors or issues disclosed. Simpler VDs are assigned to more junior VD officers, while more complex or technical VDs are assigned to more experienced officers or referred to subject matter specialists.
More complex VDs tend to take longer for CRA to process.
At this stage, CRA also likely checks that your application includes proof of payment for the estimated tax owing, or a proposed payment arrangement that satisfies CRA. CRA will not inform you as to how your VD has been triaged or when or to whom it has been assigned. This all happens in the background without your knowledge.
Step 3: CRA will analyze your Voluntary Disclosure
Once your VD is triaged, the VD officer assigned to your file will perform a full review of your file to make the final decision as to whether your VD is valid. The VD officer will confirm that your VD has met all the requirements:
Voluntary: The application is made before an audit or before an investigation has been initiated against you with respect to the information being disclosed.
At least one year past due: The application relates to a tax year that is at least one year past the filing due date.
Involves penalty or interest exposure: The application includes tax years where there is potential for penalties, interest, or both.
Complete: The application discloses all known errors and omissions with supporting documents for the past 6 years (for errors or omissions in Canada) and 10 years (for errors or omissions outside of Canada).
As part of this, their analysis may include them asking for more information, but in our experience, this is quite rare.
If the VD officer determines your VD is valid, they will also decide whether your VD was “prompted” or “unprompted”.
A prompted VD is one that a taxpayer makes after they have received some form of communication from CRA or after CRA has received information from a third party about the error or omission. Prompted VDs are entitled to full protection from prosecution and penalty relief but only a 25% reduction of interest.
An unprompted VD is one in which CRA had not issued any communication to the taxpayer, excluding general education letters. In addition to full relief from prosecution and penalties, unprompted VDs are entitled to a 75% reduction of interest.
Step 4: The Voluntary Disclosure Department will issue their results.
After CRA reviews your VD, they will write to you informing you whether they have accepted your VD and whether they have deemed it a prompted or unprompted VD. They will also inform you that they have forwarded your information to the Processing Department, which will issue you Notices of Reassessment if appropriate.
If you have questions about CRA’s decision, we are able to contact the VD officer who issued the decision.
If your VD addressed errors and omissions that were more than 10 years in the past, the letter will state that the VD Department does not have jurisdiction to provide relief from penalties and interest for those years. However, this does not necessarily mean that CRA will issue penalties for those years.
While this letter will inform you whether they have accepted your VD and whether they have deemed it prompted or unprompted, it will not tell you your final amount owing; for this, you will need to wait for your Notices of Reassessment.
Step 5: The Processing Department will implement the results
The Processing Department is responsible for calculating the tax, interest, and penalties owing and for issuing all Notices of Reassessment related to your VD. The Processing Department is like a black box – we cannot communicate with them. Based on the VD submissions, they will calculate the tax owing and interest (factoring in the interest relief) you owe.
They will also decide how to treat any years that were in your disclosure and are more than 10 years in the past.
Step 6: receive Notices of Reassessment.
Finally, you will receive the Notices of Reassessment. We always get our clients to have their CPA review their Notices of Reassessment to confirm that the Processing Department calculated the amounts correctly and that the results are consistent with the decision of the VD Department.
The final amount owing based on the Notices of Reassessment should be very close to what your CPA predicted. Therefore, you should not have to make a significant additional payment.
Hopefully, the Notices of Reassessment provide the outcome we were seeking, and that this ordeal is now over for you.
CONCLUSION
We understand that the wait and uncertainty after filing a Voluntary Disclosure can be stressful. We hope that understanding the steps involved will reduce some of that uncertainty and allow you to put your VD out of your mind while CRA works through the process.
Get Help With Your Voluntary Disclosure.
If you have questions about your Voluntary Disclosure or need assistance dealing with CRA, Blachford Tax Law can help. Our tax lawyers focus on tax disputes and work with clients and their advisors to navigate complex tax matters and pursue the best possible outcome.
FAQs
What happens after filing a Voluntary Disclosure?
CRA first establishes your Effective Date of Disclosure before reviewing and deciding whether you qualify for relief.
How long does a CRA Voluntary Disclosure take?
A Voluntary Disclosure can take more than a year to complete, depending on the complexity of the disclosure.
What is an Effective Date of Disclosure?
The Effective Date of Disclosure is the date CRA receives your VD and establishes when its protections apply.
What is a prompted Voluntary Disclosure?
A prompted VD refers to a disclosure you submit after CRA has communicated with you or received information about the disclosed issue from a third party.
What is an unprompted Voluntary Disclosure?
An unprompted VD refers to a disclosure you submit before CRA has communicated with you about the disclosed error or omission, excluding general educational letters.
What happens after CRA accepts a Voluntary Disclosure?
CRA forwards the disclosure for processing, after which the Processing Department calculates the amounts owing and issues Notices of Reassessment.