The CRA’s Voluntary Disclosures Program (VDP) is the built‑in safety valve for taxpayers and businesses who need to fix past tax non‑compliance – before the CRA fixes it for them.

If you failed to file returns, under‑reported income, missed foreign reporting, or messed up GST/HST, the VDP is the formal process to correct those errors. If the CRA grants relief, you may receive penalty relief, interest relief, and no referral for criminal prosecution – but you still pay the underlying tax owing.

This guide walks you through:

• Who qualifies (and who doesn’t)
• The 10‑year relief limit most people overlook
• The difference between unprompted vs. prompted disclosures (and why it matters)
• What relief is available (general relief, partial relief, wash transactions relief)
• How to file a complete RC199 package that the CRA can actually process
• What happens after you apply (including second review and judicial review)
• Why VDP applications get denied – and how to avoid the common traps

1. What Is the CRA Voluntary Disclosures Program?

The VDP is an opportunity to tell the CRA about errors or omissions in your tax obligations and correct them. If the CRA grants relief under the VDP, you can receive some penalty and interest relief and will not be referred for criminal prosecution for the issues disclosed – but any taxes owing still have to be paid in full.

The program applies across a wide range of CRA‑administered obligations. For example, it covers disclosures related to GST/HST and excise taxes, income tax, excise duties, the fuel charge (carbon pricing), luxury tax, underused housing tax, digital services tax, global minimum tax, and certain other federal charges.

Importantly:

• VDP relief is about penalties/interest and prosecution protection – not the tax itself. You generally still pay the tax you should have paid in the first place.
• The CRA reviews VDP requests case‑by‑case, and it is not required to grant relief just because you apply.
• You must be at least one year (or one reporting period) past the filing due date for the issue you’re correcting.
• The CRA expects you to stay compliant going forward. The CRA may consider a later VDP application only in limited circumstances (for example, if the new issue is different or beyond your control).

2. The 10‑Year Limit You Cannot Ignore

The VDP can be hugely helpful – but relief is not unlimited.

For income tax, the CRA’s ability to cancel penalties and interest is constrained by a 10‑year limitation period:

• Penalty relief: limited to penalties that could apply to tax years that ended within the previous 10 years before the calendar year you file the application.
• Interest relief: the CRA can cancel interest that accrued during the 10 calendar years before the year you request relief (even if the underlying tax debt is older).

For GST/HST and other “applicable Acts,” relief is also tied to statutory limitation periods under those Acts. Bottom line: don’t assume a disclosure automatically wipes away decades of interest and penalties – get clear on what years/periods are realistically inside the relief window.

3. Who Can Apply?

Most taxpayers and registrants can apply.

Taxpayers include:

• Individuals
• Employers
• Corporations
• Partnerships
• Trusts

Registrants include (examples):

• GST/HST registrants or claimants
• Excise duty licensees/registrants
• Excise tax licensees
• Excise tax refund claimants
• Air travellers security charge registrants / designated air carriers
• Softwood lumber product exporters

4. What Issues Are Typically Eligible?

If you’re fixing a real compliance problem (something that normally attracts interest and/or penalties), you’re in the territory the VDP is designed for.

Common VDP‑eligible situations include:

• Not filing a tax return (and it’s now at least one year late)
• Not reporting or under‑reporting income
• Claiming ineligible expenses
• Not remitting employee source deductions (CPP/EI, etc.)
• Not filing required information returns (for example, T1135)
• Not reporting foreign‑sourced income taxable in Canada
• Having undisclosed tax liabilities
• Failing to charge, collect, or report GST/HST
• Claiming ineligible GST/HST credits, refunds, or rebates
• Providing incomplete information on a return

5. The Eligibility Checklist

To be eligible for VDP relief, you must meet all five conditions below:

1. Apply before an audit or investigation starts against you (or a related taxpayer) about the information being disclosed.
2. Include all relevant information and documentation for the required tax years/reporting periods.
3. The disclosure involves an error or omission with applicable interest charges and/or penalties.
4. The information is at least one year (or one reporting period) past the filing due date.
5. You include payment of the estimated tax owing, or a request for a payment arrangement (subject to CRA approval).

What CRA officers care about in practice:

• Voluntary timing: Did you come in before the CRA started enforcement for this issue?
• Completeness: Are all affected years/periods covered, or are there obvious gaps?
• Paperwork quality: Are the returns/forms/schedules actually filed and consistent with your story?
• Payment realism: If you’re asking for a payment arrangement, is it reasonable and supported? The CRA’s approval is not guaranteed.

6. Unprompted vs. Prompted: The One Difference That Drives Your Relief

The updated VDP (effective October 1, 2025) uses two application types:

Unprompted application

You’re normally unprompted when:

• You apply when there has been no CRA communication (verbal or written) about an identified compliance issue related to the disclosure; or
• You apply after an education letter or notice that offers general guidance and filing information on a topic (those usually do not “prompt” you into a lower tier).

Example: You discover a missed T1135 and unreported foreign income, and you apply before the CRA identifies your specific issue.

Prompted application

You’re generally prompted when:

• You apply after CRA communication that identifies the compliance issue, such as a letter/notice (excluding education letters) that:
  • identifies a specific error or omission on your account, and/or
  • gives a deadline to correct the issue; or
• You apply after the CRA has already received third‑party information about potential non‑compliance involving you (or a related taxpayer/registrant).

Example: The CRA sends a letter saying they found a specific omission on your account and expects you to correct it by a certain date.

Why this matters:

Your application type typically determines whether you qualify for general relief or partial relief (next section).

7. What Relief Can You Get?

If the CRA grants VDP relief, there are different levels depending on whether your application is unprompted or prompted.

General relief (normally for unprompted applications)

• 75% relief of the applicable interest
• 100% relief of the applicable penalties

Partial relief (normally for prompted applications)

• 25% relief of the applicable interest
• Up to 100% relief of the applicable penalties

Wash transactions relief (GST/HST)

Certain GST/HST “wash transaction” situations are normally eligible for 100% relief of interest and penalties, where they fall under the CRA’s wash transaction policy.

8. How to Apply (Form RC199 Step‑by‑Step)

The CRA will consider fully completed applications only. Your application must include three things: a signed RC199, the necessary supporting documents to correct the issue, and payment or a payment arrangement request.

Step 1: Gather everything (don’t guess if you don’t have to)

Your VDP package should include:

• The completed and signed Form RC199
• All necessary returns, forms, schedules, and statements needed to correct the non‑compliance
• Payment, or a request for a payment arrangement, for the estimated tax owing

Step 2: Be complete

A “complete” disclosure generally means:

• You disclose all known errors and omissions.
• You respond comprehensively and promptly to CRA requests for additional information (if they ask).

Step 3: Include payment (or request a payment arrangement)

A valid application must include payment of the estimated tax owing or a request for a payment arrangement, subject to CRA approval.

Step 4: Submit using one method

You can submit online, by fax, or by mail — but use only one method.

• Online: through CRA My Account (individuals), My Business Account (businesses), or Represent a Client (representatives).
• Fax: 1‑888‑452‑8994
• Mail:
   Voluntary Disclosures Program
   4695 Shawinigan‑Sud Boulevard
   Shawinigan, QC G9P 5H9

Optional – Pre‑disclosure discussion (anonymous)

If you’re unsure whether to apply, the CRA offers a pre‑disclosure discussion service where you can speak anonymously to get insight into the process and risks. It’s informal and non‑binding, and it does not guarantee relief.

9. What Happens After You Apply?

If the CRA grants VDP relief, it will send you a letter confirming:

• whether the application is treated as unprompted or prompted,
• what level of relief applies (general, partial, or wash transactions), and
• which tax years/reporting periods are eligible.

If the CRA does not grant relief, it will send a letter explaining why.

If you disagree with CRA’s decision

You can:

• request a second administrative review, and/or
• apply to the Federal Court for judicial review.

10. Common Reasons VDP Applications Get Denied

From the CRA’s published requirements, the same pitfalls show up repeatedly:

• It’s not voluntary: an audit or investigation has already started on the issue.
• It’s incomplete: missing returns, missing schedules, missing periods, or missing facts.
• No payment / no payment plan request: you didn’t include payment or a payment arrangement request.
• Wrong tool for the job: you’re trying to use VDP for refund‑only adjustments, already‑assessed penalties/interest, elections, etc.
• You left out other non‑compliance: the CRA later discovers additional issues you didn’t disclose – a major credibility problem.
• You don’t respond to CRA follow‑ups: failure to provide additional information within CRA timeframes can lead to denial.

11. How a Tax Lawyer Can Strengthen a VDP Application

A good VDP application is part accounting, part law, and part “storytelling with evidence.”

A tax lawyer can help by:

• Assessing eligibility early (so you don’t make a disclosure that gets rejected.
• Positioning unprompted vs. prompted correctly, based on CRA’s definitions and the communications you’ve received.
• Ensuring the disclosure is complete (all affected years/periods, all required supporting documents, no silent gaps).
• Managing risk and communications (including responding to CRA requests and keeping the process controlled).
• Challenging an unfair result, through a second administrative review and, where appropriate, judicial review in Federal Court.

12. Need Help With the CRA Voluntary Disclosures Program?

If you know (or strongly suspect) you have unreported income, missing filings, or serious GST/HST issues, doing nothing is usually the worst option. The VDP exists so you can correct the past with significantly reduced consequences – but relief is not automatic, and a poorly prepared application can be denied.

If you’re unsure whether you qualify, or you want help preparing a complete RC199 package, getting professional advice early can make the difference between:

• a clean disclosure with meaningful relief, and
• a denied application with the CRA now aware of the issue.
  

Tax disputes in Canada are governed by strict deadlines under the Income Tax Act (Canada) (ITA) and the Excise Tax Act (Canada) (ETA). Missing these time limits for objections, appeals, or relief requests can forfeit a taxpayer’s rights. Below is a comprehensive list of certain key deadlines (and applicable extensions) for tax objections, appeals, taxpayer relief, and collections.

Objection Deadlines and Extensions

When a taxpayer disagrees with an assessment, a Notice of Objection must be filed within a prescribed time. If an objection deadline is missed, both Acts allow an application for an extension of time to object, first to the CRA and then (if needed) to the Tax Court of Canada (TCC). The table below summarizes the objection filing deadlines and extension timelines:

Deadline / Event	Time Limit (Objection Stage)
Notice of Objection – ITA (Individual taxpayers)	Later of 90 days from the date of the Notice of Assessment or 1 year after the taxpayer’s filing due date for that return. This, potentially extended option, applies to individuals (other than trusts) and graduated rate estates.
Notice of Objection – ITA (Corporations & others)	90 days from the date of the Notice of Assessment or Notice of Reassessment.
Notice of Objection – ETA (GST/HST)	90 days from the date of the Notice of Assessment (for GST/HST and other amounts under the ETA).
Apply for Extension of Time to Object – ITA	Must apply to the CRA within one year after the 90-day objection deadline.
Apply for Extension of Time to Object – ETA	Must apply to the CRA within one year after the 90-day objection deadline.
If Extension Request is Denied by CRA (ITA)	Taxpayer can apply to the TCC for an extension within 90 days of the CRA’s refusal notice. Also, if the CRA has not responded to an extension application within 90 days of filing it, the taxpayer may apply to the TCC as though it were refused. The TCC can then consider and either grant or dismiss the extension request.
If Extension Request is Denied by CRA (ETA)	Taxpayer can apply to the Tax Court within 30 days of the CRA’s refusal of the extension (or if 90 days have elapsed with no decision). The ETA thus provides a shorter 30-day window after a refused extension request for objections to seek the Court’s intervention.

Appeal Deadlines and Extensions

If the outcome of an objection is unfavorable (or unduly delayed), the next step is to appeal to the Tax Court of Canada. The ITA and ETA set deadlines for filing a Notice of Appeal after the CRA’s decision on an objection. The key documents to look out for that conclude a Notice of Objection are a Notice of Confirmation if no change is made to the assessment in dispute, or a Notice of Reassessment if the assessment in dispute has been varied. There are also provisions to appeal if the CRA delays its objection decision beyond a certain time. For missed appeal deadlines, a taxpayer can seek an extension of time to appeal by applying to the Tax Court. Key appeal-related deadlines are outlined below:

Deadline / Event	Time Limit (Tax Court Stage)
Notice of Appeal to Tax Court – ITA	90 days from the date the CRA mails its Notice of Confirmation (or notice of Reassessment) on the objection. If the CRA fails to issue a decision on the objection within 90 days of the objection being filed, the taxpayer is entitled to appeal to the Tax Court as though the objection were denied.
Notice of Appeal to Tax Court – ETA	90 days from the date the CRA (Minister) sends the Notice of Confirmation or Notice of Reassessment after an objection. If 180 days have passed since the objection was filed under the ETA and no decision has been communicated, the taxpayer is entitled to appeal to the Tax Court as though the objection were denied.
Apply for Extension of Time to Appeal to Tax Court – ITA	Must apply to the Tax Court within one year after the 90-day appeal period has expired.
Apply for Extension of Time to Appeal to Tax Court – ETA	Must apply to the Tax Court within one year after the 90-day appeal period has expired.

Taxpayer Relief Deadlines and Recourse

The Taxpayer Relief provisions allow the CRA to cancel or waive penalties and interest in extraordinary circumstances (or to accept certain late filings/elections). Such relief requests are subject to a strict 10-year limitation. If the CRA denies a relief request, the taxpayer cannot appeal to the Tax Court; instead, the decision may be challenged by an application for judicial review in the Federal Court. Key deadlines in this context:

Deadline / Event	Time Limit (Relief and Review)
Taxpayer Relief Request (Interest/Penalties)	Must be submitted within 10 years from the end of the calendar year or fiscal period to which the request relates.
Judicial Review (Relief Denial) – Federal Court	If the CRA denies a relief request (or grants only partial relief), the taxpayer first has the right to request a second review of the decision. Once a decision is rendered on the second review, the taxpayer can apply to the Federal Court for a judicial review within 30 days of receiving the CRA’s decision.

Collections Limitation Period (Ultimate Deadline for Tax Debt Collection)

Both the ITA and ETA impose an “ultimate” limitation period on the CRA’s ability to collect a tax debt. In general, the Canada Revenue Agency has 10 years to collect a tax debt, after which no further collection action can be taken unless the clock is reset by certain events (such as a payment or a written acknowledgement of the debt, or the CRA taking specific collection actions). Important points on limitation period for collection action:

Deadline / Event	Time Limit (Collections)
Collections Limitation Period – ITA	Generally, 10 years from the “date the Minister can first legally begin collection” of the tax debt. Under subsection 222(3) of the ITA, the CRA cannot commence or continue collection action after this 10-year period expires. However, ITA subsection 222(5) provides that certain actions restart the 10-year clock – for example, if the CRA takes any action to collect (like a written demand or garnishment) or the taxpayer makes a payment or acknowledges the debt in writing, the limitation period is reset and starts running anew from that date.
Collections Limitation Period – ETA	Generally, 10 years from the start of the limitation period for the GST/HST or excise tax debt. Similarly, under section 313 of the ETA, the Minister may not commence or continue collection action of a tax debt after 10 years from when the period begins. The 10-year period begins once the amount is assessed and collectible (post-appeal or 90-day no-objection window) and is extended/reset by any taxpayer acknowledgement or CRA action to collect the debt. If a full 10 years passes with no collection activity and no acknowledgements, the debt becomes statute-barred from collection.

A Notice of Reassessment means the CRA has reviewed a return that was already assessed and changed it – often affecting your tax owing, refund, penalties, and interest. What matters now is doing the right things in the right order – especially before the clock runs out.

Step 1: Do this today (the “don’t-miss-a-deadline” checklist)

1. Find the notice date (the date on the notice).
    This date generally drives your objection deadline. Determine your objection deadline.
2. Identify exactly what changed.
    Compare the reassessed amounts to your original filing (income, deductions, credits, penalties, interest).
3. Pull every CRA letter that led up to this.
    Reassessments often follow a review/audit where the CRA requested documents.
4. Collect your proof.
    Receipts, invoices, contracts, bank records, bookkeeping reports, slips, correspondence—anything that supports your original position.
5. Calendar the objection deadline immediately.
    Make sure that you document your objection deadline and do not miss it.

Step 2: Choose the right path (not every reassessment needs a fight)

A reassessment usually falls into one of these situations:

A) You agree with the change

Pay what’s owed (or set up a payment arrangement). Interest can keep accumulating on balances owing.

B) You disagree (facts misread or law misapplied)

That’s when a Notice of Objection is usually the next step. Objections are for situations where you believe they misinterpreted your facts or applied the law incorrectly.

Step 3: Know the deadline that matters most

Individuals (and graduated rate estates)

Your objection deadline is generally whichever is later:

• 1 year after the tax filing deadline for the return, or
• 90 days from the date of your notice of reassessment.

Corporations

Your objection deadline is generally:

• 90 days from the date of your notice of reassessment.

Missed the deadline?

You may apply for an extension, and the CRA states you can apply up to one year after the objection deadline (and you can apply at the same time as you file your objection).

Step 4: File a Notice of Objection

The CRA’s guidance is straightforward: when you object, you must clearly explain what you’re objecting to and why, and include relevant facts and supporting documentation.

What to include in a strong objection

• The tax year and the Notice of Reassessment you’re objecting to
• The specific items you disagree with (line items/issues)
• A clear explanation of why (facts + law, where relevant)
• The documents that prove your position
• A summary your reviewer can follow quickly

How to file

You can file:

• Online in CRA portals (My Account / My Business Account) using “Register my formal dispute”, and then upload documents through “Submit documents online.”
• Through your authorized representative via Represent a Client
• By mail/fax using Form T400A (Objection – Income Tax Act) or a signed letter with the facts, reasons and the same information that would go into a T400A form.

Step 5: Does interest continue to accrue while you object?

Interest charges continue to accrue while the amount is in dispute. You can pay the amount in dispute to avoid additional interest.

Step 6: What happens after you object?

Once you file, the CRA reviews what you submitted and will either:

• agree (in whole or part) and issue an adjustment/reassessment, or
• disagree and send a notice saying the reassessment/determination was correct

Step 7: If the CRA says “no,” the next step is Tax Court

If you disagree with the CRA’s decision on your objection, you can appeal to the Tax Court of Canada. Generally, you have 90 days from the CRA’s reassessment /determination following your objection to file your appeal.

How far back can the CRA go?

Under the Income Tax Act, the “normal reassessment period” is generally:

• 4 years for a mutual fund trust or a corporation that is not a CCPC, and
• 3 years in most other cases, counted from the day the CRA sent the original assessment (or the original “no tax payable” notification).

The CRA can reassess after that normal period in specific situations – such as where there was a misrepresentation attributable to neglect, carelessness, wilful default, or fraud, or where a waiver was filed.

One more option people miss: relief from penalties and interest

If your main issue is penalties and/or interest (not the underlying tax), you may be able to request taxpayer relief (discretionary, fact-driven). There’s also a 10‑year limitation period for interest relief requests (and related limits for penalties/interest outside the eligible window).

Bottom line

A CRA Notice of Reassessment isn’t the end of the road – but it is a deadline-driven process. If you believe the reassessment is incorrect, the goal is to:

• lock in your deadlines,
• build an evidence-based position, and
• file a clean, timely objection that’s easy for CRA to understand.

If you want help assessing the notice, preparing your objection, or planning next steps (including Tax Court strategy), contact Taxpayer Law today.

Tax disputes can be daunting for any business. When faced with a Canada Revenue Agency (CRA) audit or a tax reassessment, companies need a lawyer who can provide not only competent legal defense but also practical guidance through the process. A successful tax litigation (or tax dispute resolution) lawyer will protect the company’s interests, navigate complex tax laws, and strive for the best outcome – whether that means negotiating a favorable settlement or fighting a case in court. The following are key qualities and skills to look for in a strong tax disputes advocate for your business.

Legal Expertise in Canadian Tax Law

At the core, a good tax litigation lawyer must have mastery of tax law. Tax is an intricate and ever-changing field, so your lawyer should have in-depth knowledge of Canadian tax statutes, regulations, and case law. This expertise enables them to interpret complex rules and apply tax laws to your advantage. Look for a practitioner with a proven track record in resolving tax disputes – their past successes and years of focused experience are a testament to strong technical skills. Top tax litigators often have significant technical expertise, giving them insight into the nuances of corporate tax, GST/HST, international tax and more. In short, a successful tax disputes lawyer offers deep and up-to-date tax knowledge, which is critical when your business is dealing with complicated assessments or obscure provisions of the law.

Strategic Thinking and Problem-Solving

Tax controversies require not just knowledge, but also strategic savvy. Every tax dispute is unique, so a skilled lawyer will assess the specifics of your situation and develop a customized resolution strategy rather than a one-size-fits-all approach. This strategic thinking involves evaluating the strength of your legal position, anticipating the CRA’s tactics, and deciding when to negotiate or when to litigate. The best tax litigators are innovative problem-solvers who can find creative, cost-effective ways to settle issues early when possible. They will outline a clear plan – for example, whether to engage in settlement discussions, file a notice of objection, or proceed to the Tax Court – and adapt that plan as new developments arise. In high-stakes corporate tax disputes, this kind of foresight and planning can save your business time, resources, and uncertainty.

Familiarity with the CRA and Canadian Courts

Successful tax dispute lawyers know the terrain of tax enforcement and litigation. That means being thoroughly familiar with the CRA’s processes (from audits and investigations to the appeals process) as well as the procedures of the Tax Court of Canada and other courts. A seasoned tax litigator is well-versed in the rules and procedures laid out by the CRA and the Tax Court of Canada, ensuring that your case is handled in full compliance with the proper protocols. Many leading practitioners have experience dealing with CRA auditors and appeals officers on a daily basis, and some even come from backgrounds as former CRA lawyers or Tax Court clerks. This insider familiarity can be a huge asset – your lawyer will know how to navigate the CRA’s bureaucracy and anticipate common issues or delays. And if your case does end up in court, they will have the advocacy experience to present a solid defense before a judge. In short, look for counsel who regularly deals with the CRA and appears before the Tax Court, as this experience helps them handle your dispute efficiently and effectively.

Strong Negotiation Skills

In Canada, the majority of tax disputes with the CRA are resolved out of court, often through settlements or negotiated agreements. Therefore, a tax disputes lawyer must be an adept negotiator. They should be skilled in communicating with tax authorities on your behalf, addressing the issues in contention and exploring avenues for settlement. Effective negotiation can result in significant benefits – for example, your lawyer might manage to negotiate a settlement with the CRA that lessens your company’s tax liability or avoids hefty penalties. This skill requires both legal acumen and tact: a good tax lawyer will know the strengths and weaknesses of your case and use that knowledge as leverage in discussions with Department of Justice lawyers. They also understand the CRA’s perspective and constraints, which helps  finding a middle ground where possible. By choosing a lawyer with strong negotiation skills, you increase the likelihood of a faster, mutually acceptable resolution that spares your business the uncertainty of a trial.

Industry-Specific Knowledge and Business Acumen

Tax issues do not exist in a vacuum – they are intertwined with the business activities and industry context of the taxpayer. A successful tax litigation lawyer for a corporation will take the time to understand your company’s industry, business model, and objectives. Familiarity with the specific sector (be it technology, real estate, finance, manufacturing, etc.) allows the lawyer to anticipate unique tax challenges and craft arguments that make sense in your business context. Importantly, an effective advocate sees the bigger picture beyond just legal rules. In practice, this means your tax lawyer should recognize what a dispute means for your operations, finances, and stakeholders. They might, for example, know how a potential tax settlement could impact your financial statements or industry reputation. This blend of tax knowledge and business acumen ensures that the advice you get is practical and aligned with your corporate goals.

Effective Communication with Corporate Stakeholders

Tax law is full of technical jargon and arcane concepts, so a lawyer’s ability to communicate clearly is paramount. The ideal tax dispute lawyer can distill complex tax and legal issues into plain language for their clients. They will explain complicated tax concepts in a way that you and your team can understand, and they remain responsive to questions and concerns throughout the process. This communication skill is important not only for the day-to-day lawyer-client relationship, but also for keeping all corporate stakeholders informed. For instance, the lawyer should be comfortable briefing your company’s executives or board members on the status of a case and its implications. They should also be able to work collaboratively with other professionals such as your accountants or financial advisors. A good tax litigator often coordinates with a corporate client’s CFO or external tax advisors to ensure everyone is on the same page. In court or negotiations, strong communication skills translate to persuasive advocacy – but internally, they mean you’ll always know where your case stands and can make informed decisions. In short, look for an advocate who is not just legally savvy but also a clear communicator and trusted advisor to your business.

Conclusion

When a Canadian business is selecting a tax litigation and disputes lawyer, these qualities – deep tax law expertise, strategic thinking, CRA/courts familiarity, negotiation prowess, industry knowledge, and solid communication – are key indicators of a strong advocate. A lawyer who embodies these traits will be well-equipped to protect your company’s interests in a tax dispute. They will navigate the technicalities of tax legislation and the nuances of CRA procedure, all while keeping your business objectives in focus. By choosing a tax disputes lawyer with the right mix of legal skill and practical insight, you can approach any CRA audit or tax litigation with greater confidence that your case is in capable hands.

Understanding CCPC vs. Non-CCPC Status

In Canada, a Canadian-controlled private corporation (CCPC) is generally a private corporation that is Canadian-controlled (generally not controlled by non-residents or public companies) and is a “Canadian corporation” (generally incorporated or resident in Canada).

CCPC status confers certain tax benefits (like the small business deduction and enhanced R&D credits) but also imposes a high tax on passive investment income through a refundable tax mechanism. This refundable tax regime effectively prevents shareholders from deferring personal tax by earning investment income inside a CCPC – the CCPC pays ~50% tax upfront on passive income, part of which is refunded only when dividends are paid out to shareholders.

In contrast, a non-CCPC can access the lower general corporate tax rate on investment income or capital gains, avoiding the punitive refundable tax. The trade-off is losing CCPC-specific benefits (e.g. small business deduction, capital gains exemption on shares, etc.). Many private business owners and tax advisors find this trade-off worthwhile in order to achieve a deferral or reduction of tax on investment income or one-time capital gains.

Common Strategies to Become a Non-CCPC

“Non-CCPC planning” refers to tax planning that intentionally causes a corporation to lose its CCPC status to take advantage of lower tax rates on certain income. Several strategies emerged in recent years to accomplish this, including:

Continuance Outside Canada (Corporate Residency Planning):

A CCPC could be continued into a foreign jurisdiction (e.g. the British Virgin Islands) while keeping its mind and management in Canada. Because it is then deemed incorporated abroad, it no longer qualifies as a “Canadian corporation” under the Income Tax Act (Canada). It remains a Canadian tax-resident private corporation, but not a CCPC. As a result, the corporation still pays Canadian tax on its income but now at general corporate rates on passive income and capital gains – avoiding the CCPC refundable tax mechanism and achieving a significant tax deferral advantage.

Voting Control Held by Non-Canadians or Public Entities:

Another approach was to deliberately transfer or grant voting control of the corporation to a non-resident person or a public corporation. This could be done by granting an option that allows a non-resident or public company to acquire control. Under the tax rules, if a non-resident or public company has a right to acquire shares that would give control, the corporation is deemed controlled by them for CCPC purposes, thereby disqualifying it as a CCPC. These “voting rights” tactics were often seen as simpler and less aggressive than a full continuance to a foreign jurisdiction, since they could be structured with legal agreements while the business operations remained unchanged.

Going Public (Listing Shares):

Listing the company’s shares on a stock exchange was a straightforward way to lose CCPC status. A CCPC must be a “private corporation,” so once any class of its shares becomes listed on a designated stock exchange, the company becomes a public corporation and immediately ceases to be a private corporation and hence a CCPC.

Each of these strategies results in a non-CCPC that is still a Canadian tax-resident but is no longer subject to the CCPC rules. The primary goal was to realize certain income or gains inside this non-CCPC at lower tax rates. For example, owners planning to sell shares with a large accrued gain, or those anticipating substantial investment income (interest, rent, portfolio dividends, etc.), implemented non-CCPC status before the income events to sidestep the higher CCPC tax on such passive income.

Government Response and Timeline of Changes

Aggressive non-CCPC planning gained traction in the late 2010s, and tax authorities took notice. In early 2022, the government moved swiftly to counter these strategies on two fronts:

February 4, 2022 – Notifiable Transactions Proposal:

The Department of Finance introduced draft mandatory disclosure rules including a category of “notifiable transactions” specifically targeting CCPC status manipulation. Non-CCPC planning was identified as one of six sample transactions of interest – essentially flagging it as a potentially abusive tax strategy that would require rapid disclosure to the Canada Revenue Agency (CRA) if undertaken. Taxpayers and their advisors would have to report any transaction or series “involving manipulation of CCPC status to avoid the refundable tax regime” within a short deadline (originally 45 days). This proposal signaled that the CRA viewed non-CCPC planning as a transaction of interest, carrying significant penalties for non-disclosure once the rules came into effect.

April 7, 2022 – Substantive CCPC Rules Announced:

The 2022 Federal Budget delivered a more direct blow to the tax benefits of non-CCPC planning. It proposed new “substantive CCPC” rules designed to eliminate the deferral advantage. In essence, any private corporation that is factually or legally controlled by Canadian residents but had ceased to be a CCPC (a “substantive CCPC”) would still be subject to the CCPC’s punitive tax rate on investment income. This means even if a corporation successfully changed status to non-CCPC, its interest, rental, and investment income would be taxed as if it were a CCPC, removing the main incentive for the planning. However, unlike a true CCPC, such corporations would not get the usual CCPC perks (like the small business deduction or enhanced credits). The substantive CCPC measure was effectively a “backstop” to ensure the higher tax on passive income applies based on who ultimately controls the corporation (Canadian individuals) rather than the technical CCPC status.

These twin measures created immediate concern for taxpayers in non-CCPC structures. Advisors recommended urgent action – either unwinding the structure (e.g. continuing the corporation back to Canada or cancelling any agreements that caused the loss of CCPC status) before the new rules took effect, or preparing to comply with reporting obligations once they became law. Notably, the draft notifiable transaction rules were to apply retroactively to transactions from January 1, 2022. This meant even steps taken in early 2022 could eventually require disclosure.

Late 2022 – 2023:

There was a period of uncertainty as the proposals awaited enactment. The Department of Finance announced in late 2022 that the new reporting requirements (notifiable and enhanced reportable transactions) would not kick in until the legislation received Royal Assent. In June 2023, Parliament passed these rules, and by late 2023 the CRA formally designated its first list of notifiable transactions. Interestingly, non-CCPC planning was not on the final list. The CRA had initially listed CCPC status manipulation as a targeted transaction in the 2022 draft backgrounder, but by the time of implementation it was omitted – likely because the substantive CCPC rules were addressing the issue directly. In other words, the government chose to solve the problem by changing the law (removing the tax benefit) rather than relying on continual disclosure of such transactions. Additionally, standard “reportable transaction” rules (which hinge on confidential or contingent fee arrangements) generally did not capture routine structural changes like CCPC status planning, so most non-CCPC plans were not automatically reportable under those hallmarks.

Effective 2023–2024:

The substantive CCPC legislation is now in force (with retroactive application to mid-2022). Starting with 2022 taxation years, many corporations that were non-CCPCs now have to pay the CCPC-level tax on passive income.

The window for benefiting from non-CCPC structures has essentially closed for current and future years – any ongoing deferral advantage largely evaporated once the law changed.

CRA Audits and Recent Developments

Although mandatory disclosure of non-CCPC transactions was ultimately not required, the CRA has not been complacent. Now (2023–2025), the CRA is actively auditing taxpayers who engaged in non-CCPC planning, especially for years before the new rules took effect.

In fact, the CRA is reviewing these cases and challenging them under the General Anti-Avoidance Rule (GAAR) for pre-2022 tax years. The GAAR is a broad rule that allows authorities to deny tax benefits of “abusive” avoidance transactions. The CRA’s position is essentially that deliberately avoiding CCPC status solely to obtain a lower tax rate might abuse the object of the law, and thus could be subject to GAAR for years when it was otherwise legal. However, applying GAAR is contentious and not guaranteed to succeed in challenging non-CCPC planning.

For 2017–2021 tax years, CRA audits are focusing on GAAR because at the time non-CCPC planning technically complied with the letter of the law. For 2022 and later years, the CRA has a simpler tool – the substantive CCPC rules themselves. If a corporation controlled by Canadians tried to avoid CCPC status in 2022 or beyond, the law now explicitly denies the tax benefit (by taxing its passive income at higher rates), negating the need for a GAAR argument. In practice, this means any corporation that remained a non-CCPC into 2022 should have started paying tax as a substantive CCPC from that point forward.

The era of lucrative non-CCPC tax planning has effectively ended. Tax professionals and business owners who engaged in such planning should be aware that while they may not have had to file a specific report to the CRA about it, their transactions are on the CRA’s radar. Some may find their structures under review, with the outcome hinging on the courts’ interpretation of the GAAR. They are now under the watchful eye of the tax authorities.

This article was originally published by Law360 Canada (www.law360.ca), part of LexisNexis Canada Inc.