As discussed in Tax Tips 05-26 (October 14, 2005) and 05-17 (July 11, 2005), taxpayers may wish to come forward to the Canada Revenue Agency (“CRA”) to voluntarily disclose certain errors or omissions in their tax affairs in certain circumstances. To the extent that the disclosure is considered a valid voluntary disclosure, penalties and certain interest relief may be granted by the CRA using their discretionary powers provided to them under certain provisions of the Income Tax Act. The CRA has outlined their administrative policy regarding the voluntary disclosures program in CRA’s Information Circulars. On October 22, 2007 the CRA released Information Circular IC-00-1R2, which replaced Information Circular IC-00-1R (Sept. 30, 2002).

Information Circular IC-00-1R2 is more specific. Information Circular IC-00-1R contained 15 paragraphs of information whereas the new Information Circular contains 65 paragraphs. While experienced tax practitioners will not be surprised by many of the new paragraphs, one particular paragraph does stand out. The CRA now requires that a new form – Form RC199 – be completed and attached to the written disclosure being made to the applicable tax services office. While it appears that a valid voluntary disclosure could be made without the form, the CRA states that the processing time of the voluntary disclosure would be increased without the completion of Form RC199.

In recent years, the use of the voluntary disclosure program by taxpayers has significantly increased. It has been a very useful tool to assist in the correction of tax affairs for many taxpayers. We expect the use of the voluntary disclosure program to continue to increase. Given such expectation, it is not surprising that the CRA has continued to refine the program and document such requirements in the new Information Circular.

For those taxpayers affected, they should consider the merits of utilizing the voluntary disclosure program and reviewing the new Information Circular.

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The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.