GST/HST Voluntary Disclosures – New Rules are Coming March 2018

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On December 15, 2017, the Canada Revenue Agency (the “CRA”) released new guidelines on the rules applicable to voluntary disclosures that are made (or for which the name of the taxpayer is disclosed) on or after March 1, 2018.  Like the earlier draft guidelines, which were released on July 9, 2017, the new guidelines include a separation of the rules applicable to income tax voluntary disclosures and the rules applicable to disclosures of errors relating to GST/HST and other non-income taxes.  Below is a summary of the new voluntary disclosures program for GST/HST (“VDP”).


The voluntary disclosures program allows taxpayers to make disclosures to the Canada Revenue Agency to correct inaccurate or incomplete information, or to disclose information not previously reported. We understand there were concerns within the CRA that the existing program was overly generous to participants in the program (as compared to taxpayers who had been fully compliant), and proposals to revise the program have been in the works for some time now.  In this regard, the CRA issued an earlier version of the VDP guidelines for comments on June 9, 2017, with an initial proposed implementation date of January 1, 2018.

There was much speculation that this implementation date would be postponed, as well as  hope that the final guidelines would address concerns expressed by many tax practitioners that certain proposed measures in the June 9, 2017 version were too harsh and would lead to few taxpayers choosing to avail themselves of the program.  In the result, the new VDP guidelines includes significant improvements from the July 9, 2017 version.  As compared to the program that is currently in place, the new VDP is more beneficial for taxpayers in some cases, and worse for taxpayers in others.

VDP Categories

The new VDP includes three categories for disclosures, depending on the taxpayer’s circumstances.

Category 1 (GST/HST Wash Transactions Disclosures)

Category 1 disclosures include disclosures of errors relating to qualifying GST/HST “wash transactions”. This generally covers situations where a taxpayer who supplied goods or services fails to collect and remit tax as required, and the recipient would have been entitled to full input tax credits.  Wash transactions will continue to be eligible for full relief from interest and penalties under the new VDP. As for the relevant period, these disclosures will require disclosure of previously inaccurate, incomplete or unreported information for the four calendar years before the date the VDP application is filed.

Category 2 (General Program Disclosures)

Category 2 disclosures will apply to non-compliance or reasonable errors, failure to file information returns, situations involving no gross negligence or deliberate avoidance of tax, and over-claimed rebates.  Category 2 disclosures will qualify for waiver of penalties and 50% of the applicable interest.  Category 2 disclosures will also require disclosure of information for four calendar years. This 4-year period is a reduction from the 6-year period that was initially proposed for category 2 disclosures.  Limiting the required period for disclosure to 4 years is a welcome change, and better reflects the fact that the scenarios that would fall into this category would generally be subject to the normal reassessment period of 4 years in an audit.  From a policy perspective, a participant in a VDP should not be made worse off than a non-compliant taxpayer that opts for no action until audit.

Category 3 (Limited Program Disclosures)

Category 3 disclosures will apply to disclosures involving non-compliance where there is an element of intentional conduct on the part of the taxpayer or a closely related party.  Examples provided include failure to remit tax that was charged or collected, efforts to avoid detection, deliberate or wilful default or carelessness amounting to gross negligence, or disclosure made after “an official CRA statement regarding its intended specific focus of compliance (for example, the launch of a compliance project or campaign)” or “broad-based CRA correspondence (for example, a letter issued to registrants involved in a particular sector about a compliance issue)”.

Notably, the new VDP guidelines provide that: “Generally, applications by corporations with gross revenue in excess of $250 million in at least two of their last five taxation years, and any related entities, will be considered under the Limited Program.” (emphasis added).  This is unwelcome news for large corporations and their related entities, as Category 3 disclosures provide relief from gross negligence penalties and criminal prosecution, but interest and other applicable penalties will not be waived.  The VDP application for Category 3 disclosures must also be made for “all relevant years” where there was previously inaccurate, incomplete or unreported information.  Category 3 disclosures also entail the waiver of objection rights, as discussed further below.

Other factors in determining applicable category

The new VDP guidelines provide that the determination of the applicable VDP category will be made on a case-by-case basis, with the following factors to be considered in all cases in determining  the applicable VDP category:

  • the dollar amounts involved;
  • the number of years of non-compliance;
  • the sophistication of the registrant; and
  • how quickly the registrant took corrective measures to address the non-compliance upon discovery.

The guidelines also note that the existence of a situation or a single factor will not necessarily result in a disclosure falling into Category 3, and that “a sophisticated registrant may still correct a reasonable error under the [Category 2] General Program.”  It is unclear from the guidelines whether a reasonable error made by “corporations with gross revenue in excess of $250 million in at least two of their last taxation years” will qualify for the VDP as a Category 2 disclosure.  In our view, the use of the term “generally” above suggests that the Category 2 disclosure will remain available for large taxpayers in limited cases, so long as the error is considered by CRA to be one that was “reasonable” for a large taxpayer to have made.  It remains to be seen what kinds of errors will fall into this category.

Conditions to qualify for relief

To qualify as a valid voluntary disclosure under the new VDP, the disclosure must be (1) voluntary, (2) complete, (3) involve the application or potential application of a penalty or interest, (4) include information that is at least one reporting period past due, and (5) include payment of the estimated tax owing.

These requirements resemble the current requirements for voluntary disclosures to some extent, with some key differences:

  1. Under the new VDP, the information must be provided for 4 years for Category 1 or 2 disclosures, and for all years for Category 3 disclosures. The current program technically requires information to be provided for all reporting periods, but the actual periods required to be disclosed was generally subject to discussion with the CRA, with 4 years being the minimum.  The certainty of the 4-year period under the new program will be helpful for those making Category 1 or Category 2 disclosures.
  2. The new VDP also requires information that is at least one reporting period past due, as opposed to at least one year past due under the current program. This will make monthly and quarterly filers eligible to enter the VDP sooner in cases where the issue that is the subject of the disclosure is current and limited in scope.
  3. Unlike the current VDP, which requires the potential application of a penalty, the new VDP requires the potential application of either a penalty or interest. This is a significant and welcome change given that GST/HST errors often involve the potential application of interest only, ever since the legislation was amended effective April 2007 to remove the former 6% penalty in favour of a higher interest rate.  As a result, a voluntary disclosure often could not be made for GST/HST errors unless the facts involved a failure to file returns.
  4. The new VDP requires payment of the estimated tax owing. This is currently not required for GST/HST voluntary disclosures, although it is required for QST voluntary disclosures. We expect the requirement to pay the estimated tax owing will result in taxpayers being required to provide more details and better estimates of tax at the time the VDP is made, than under the current program.

No-name disclosures

The current voluntary disclosures program allows taxpayers to initiate voluntary disclosures on a no-names basis by providing details of the disclosure, and the first half of the taxpayer’s postal code.  Under the new VDP, voluntary disclosures may no longer be initiated anonymously.  Instead, taxpayers will be “given an opportunity to participate in preliminary discussions” with a CRA official through their representatives, before filing the VDP application.  The discussions are to be “informal” and “non-binding”.  We understand the CRA expects certain taxpayers to receive enhanced service in terms of the information provided at this stage, as CRA officials in specialized audit areas will be made available to discuss complex questions on an anonymous basis.

The voluntary disclosure will be effective (and the taxpayer will receive protection from initiation of prosecution action related to the penalty disclosure) once the completed and signed VDP application is filed.  Taxpayers then have up to 90 days, if required, for the submission of additional information/documentation.

Objection rights

 The new VDP introduces a mandatory waiver of appeal rights for Category 3 disclosures.  Specifically, the new VDP guidelines provide that “the registrant will be required to “waive their rights to object and appeal in relation to the specific matter disclosed in the VDP application and any specifically related assessment of taxes” but that “this waiver will not prevent the registrant from filing a Notice of Objection in circumstances where the assessment includes a calculation error, relates to a characterization issue (such as whether a supply is a taxable or exempt supply), or relates to an issue other than the matter disclosed in the VDP application.”  This change could result in significant unforeseen consequences for taxpayers with Category 3 disclosures, as it appears to involve a waiver of certain rights to object to an assessment, before the assessment is issued, and before its contents are known.


The new VDP will be better than the existing program for some taxpayers and worse for others, depending on the taxpayer’s circumstances.  For large corporations with gross revenue in excess of $250 million in at least two of their last five taxation years, and any related entities, it would be advisable to make a voluntary disclosure (or disclose the name for a no-name disclosure) before the end of February 2018.  The extent of the benefit of the new VDP for large corporations and related entities after this date will depend on the CRA’s application of the newly introduced measures for Category 3 disclosures, as detailed above.