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 shortfall amount, which may incur an interest charge. We may reduce this charge if the shortfall amount results from an unprompted voluntary disclosure (made outside any audit or review).
You may have to ask us to reduce the interest charge and provide additional information.
We can impose no penalty, or one of three penalty amounts, following our assessment of your voluntary disclosure. These penalty amounts can often be reduced, depending on when you tell us about the correction. Generally, the reduction is greater if you make a voluntary disclosure before we notify you of an examination.
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 about it 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.
Often at the beginning of an audit or during the course of a review we invite a voluntary disclosure. If you make one before the date advised or during the review, usually the penalty, if any, will be reduced by 80%.
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.