Penalties and interest arising from voluntary corrections
If you make a voluntary disclosure you can generally expect a reduction in the administrative penalties and interest charges that would normally apply. (Administrative penalties are those we may impose without taking court action.)
Reduced interest charges
A correction that increases your tax (or reduces your credits) creates a tax shortfall. We may impose an interest charge on the shortfall. For shortfalls that are the result of a voluntary disclosure, we may reduce the interest charge (unless the law prevents us from doing so).
The amount of any reduction depends on when you tell us about the correction. Generally, the reduction is greater if you make the disclosure before we notify you of an examination.
You may have to ask us to reduce the interest charge.
The amount of any reduction in penalty amounts depends on when you tell us about the correction. Generally, the reduction is greater if you make the disclosure before we notify you of an examination. For example, if we find mistakes or omissions as part of an examination, the penalty can be as high as 90% of the tax shortfall we uncover. However, if you disclose the tax shortfall voluntarily, we may reduce the penalty by 80% or more.
We will reduce some penalties by 80% if you tell us about a shortfall amount before the earlier of:
- the day we tell you we are going to conduct an examination of your affairs, or
- the last day we will accept a voluntary disclosure if we have publicly requested voluntary disclosures about a transaction that applies to your financial affairs.
If the shortfall is less than $1,000, we will reduce the penalty to nil if you tell us before we tell you that we are going to examine your tax affairs and we have not publicly requested voluntary disclosures.
If you make the voluntary disclosure after we advise you that we will conduct a tax examination, we will reduce the penalty by 20% if your disclosure can reasonably be estimated to have saved us a significant amount of time or resources.
In limited circumstances, we apply the 80% reduction to taxpayers who qualify only for the 20% reduction.
Conversely, we may increase the penalty if we consider your particular circumstances warrant it.
You can ask us to reduce the amount of some penalties and if we decline your request, you can object to that decision.
When you make a voluntary disclosure that increases the tax you should have paid (or reduces your credit), we generally substantially reduce any interest and penalties we would otherwise impose.