Many business owners only discover a past tax problem after a letter from the Canada Revenue Agency (CRA) arrives. The right response depends on what the letter says and on whether the issue you want to correct is already under examination.
Under the CRA's current rules in IC00-1R7, which apply to Voluntary Disclosures Program (VDP) applications received on or after October 1, 2025, contact from the CRA no longer shuts every door.
Yes, you can still apply to the VDP after CRA contact, provided no audit or investigation has started on the information you are disclosing; the application is then treated as prompted and normally receives 25% interest relief and up to 100% penalty relief, compared with 75% interest relief and 100% penalty relief for an unprompted application. The gap between those outcomes is real money, so timing and scope decisions deserve care.
At Beganyi Law, our corporate and tax practice helps Ontario business owners decide whether a disclosure is still available and prepare it alongside their accountants. If you have received a CRA letter and are weighing your options, you can arrange a confidential consultation by calling +1 647-977-7749 or through our contact page.
Key Takeaways
- A CRA review letter is a narrower check than an audit and may leave disclosure open.
- Relief depends on whether your application is voluntary, unprompted or prompted, and complete.
- If relief is unavailable, objection, review and court routes each have strict deadlines.
Can You Still Apply After the CRA Contacts You?
Applying after CRA contact remains possible in many cases, because eligibility turns on whether an audit or investigation has started on the specific issue you want to disclose. The type of letter decides whether your application is unprompted, prompted, or ineligible, and that classification sets the level of penalty and interest relief.
Does a Review Letter Mean an Audit Has Started?
A review letter does not mean an audit has started. The CRA describes a review as a routine check that income, deductions, and credits are reported correctly and supported, and it reviews about 3 million income tax returns every year.
An audit is a broader examination of books and records. An auditor contacts you by mail or phone to set a date, time, and location, and may examine business ledgers, bank statements, and even records of family members or related corporations.
In our experience, the first step is reading the letter line by line. Note the program named, the tax year, the account, and the specific documents requested. Those details tell you what the CRA is looking at and what it is not.
What Makes an Application Prompted or Unprompted?
An application is unprompted when there has been no verbal or written communication about an identified compliance issue related to the disclosure. An application filed after a general education letter, which offers broad guidance on a topic, also stays unprompted.
An application becomes prompted when it follows CRA communication that does one of the following:
- identifies a specific error or omission on your account
- sets a deadline to correct an error or omission, with an expectation that you file or comply
- follows the CRA's receipt of third-party information about your possible non-compliance, or that of a related taxpayer
When Does Audit or Investigation Activity Prevent Relief?
Relief is unavailable once an audit or investigation has been initiated against you or a related taxpayer in respect of the information being disclosed. At that point the application is no longer voluntary.
The rule reaches beyond the CRA. Investigations by a law enforcement agency, a securities commission, or another federally or provincially regulated authority also count. A corporate audit can therefore affect a shareholder's disclosure of the same issue.
What Penalty and Interest Relief May Be Available?
The relief levels under IC00-1R7 are fixed by category:
Application type | Interest relief | Penalty relief |
|---|---|---|
Unprompted | 75% | 100% |
Prompted | 25% | Up to 100% |
Audit or investigation already started on the issue | None under the VDP | None under the VDP |
Eligible applications in either category also receive protection from criminal prosecution, and gross negligence penalties will not apply to the disclosed information. The tax itself must still be paid in full.
Why Might the CRA Examine Your Business Returns?
The CRA selects files through risk assessment, comparing your filed information against similar files, third-party data, and findings from other audits or investigations. Business owners most often draw attention through reporting gaps, foreign and digital assets, and sales tax inconsistencies.
How Do Income Mismatches and Unsupported Expenses Attract Scrutiny?
Mismatches between what you report and what the CRA already knows are a common source of audit activity. Slips, information returns, and third-party records feed automated matching, so unreported income from rental properties, investments, or side businesses tends to surface.
Business expenses without receipts or contracts create the same exposure. Auditors look for an audit trail from source documents to the financial accounts, and they can review adjustments made by your bookkeeper or accountant for tax purposes.
Practical warning signs we see include:
- personal expenses run through the corporation
- shareholder loan balances with no repayment record
- rental income reported personally but not reconciled to bank deposits
- year-over-year swings in gross margin with no business explanation
Why Do Foreign Holdings and Cryptocurrency Records Matter?
Foreign assets carry their own reporting regime. Canadian resident individuals, corporations, and certain trusts must file Form T1135 when specified foreign property costs more than $100,000 at any time in the year. Unreported foreign income combined with a missed or inaccurate T1135 extends the CRA's reassessment period by three years.
Cryptocurrency transactions require detailed records for each trade: units, date and time, Canadian dollar value, the nature of the transaction, wallet addresses, and opening and closing balances each year. Exchanges keep records to different standards, so the CRA recommends exporting your activity history regularly. Gaps here make both an audit response and a disclosure harder to support.
What Can a GST/HST Audit Examine?
A GST/HST audit tests whether you collected, reported, and remitted tax correctly and whether your input tax credits are supported. Auditors compare filed returns with sales records, invoices, contracts, and bank deposits.
GST/HST errors can also be disclosed through the VDP. For those errors, the application must include documentation for the last four years, a shorter window than the income tax rules discussed below.
How Do You Prepare a Complete Disclosure?
A complete disclosure includes every known error, the returns and schedules needed to correct each affected year, and payment or a payment arrangement request. Incomplete applications are a leading reason for denial, so preparation is where most of the work sits.
Check Filing Dates, Eligibility, and the Issues Being Disclosed
Start by confirming the basic eligibility conditions. The error must relate to a tax year at least one year past its filing due date, and it must carry interest, penalties, or both.
Several situations fall outside the program, including:
- returns resulting in a refund or with no tax or penalties owing
- relief on penalties or interest already assessed
- making or altering an election
- an insolvency event for the disclosed years
Map each issue against the CRA correspondence you have received. One issue may be prompted while another remains unprompted.
Coordinate Corporate and Shareholder Records With Your Accountant
You must disclose all known errors and omissions, including related arm's length and non-arm's length transactions. For owner-managed businesses, that means reconciling the corporation's position with each shareholder's personal filings.
Required documentation covers the most recent six years for Canadian income and ten years for foreign income or assets. We work directly with clients' accountants so amended returns, shareholder loan adjustments, and corporate records tell one consistent story.
Our approach to integrated tax and legal strategy in Ontario is built for this kind of coordination. If a professional advised on the disclosed matter, their name must appear on the form.
Use Form RC199 and Understand the Effective Date of Disclosure
Applications are made on Form RC199, signed by you and, where one is used, your authorized representative. You can submit online through My Account, My Business Account, or Represent a Client, or by fax or mail, using one method only.
Once the CRA acknowledges receipt, it issues an effective date of disclosure (EDD). Relief, if granted, applies up to that date, so filing a complete application promptly protects more of your interest exposure.
Consider a Pre-Disclosure Discussion and Arrange Payment
A pre-disclosure discussion lets you speak with a CRA official anonymously about the process, the relief available, and the risks of staying non-compliant. These discussions are informal and non-binding, which makes them useful when the prompted or unprompted question is unclear.
Your application must include payment of the estimated tax owing or a request for a payment arrangement. CRA collections officials review each request, and approval is not guaranteed.
What Happens if Disclosure Is Unavailable or Relief Is Refused?
When the VDP is closed or relief is denied, your protection shifts to managing the audit carefully and using the dispute routes the law provides. Each route has its own deadline and decision-maker.
Respond to Audit Requests Without Missing the Stated Deadlines
Respond to every CRA tax audit request by the date stated in the letter. Failing to provide required books and records is an offence, and missing deadlines can lead the CRA to issue formal requirements for information.
If you need more time, call the auditor before the deadline and explain why. Auditors are directed to consider reasonable extensions for events outside your control, such as illness or a change in representative. Keep a log of every call and submission.
Distinguish a Proposal Letter From a Notice of Reassessment
A proposal letter sets out the auditor's intended adjustments, including any penalties, and normally gives you 30 days to respond with explanations or documents. It is your best chance to correct the record before anything is assessed.
A notice of reassessment is the formal result. If you do not respond to the proposal, the reassessment may simply be processed. Where tax will be owed, the auditor can estimate the amount in advance so you can pay early and limit interest.
When Is a Notice of Objection the Appropriate Route?
A notice of objection is the formal route for disputing tax, interest, or penalties on a notice of assessment or reassessment. Corporations have 90 days from the date of the notice. Individuals have until the later of one year after the filing deadline or 90 days from the notice.
An objection cannot be used to challenge a VDP decision itself. Large corporations, with taxable capital in Canada over $10 million, must pay 50% of the disputed amount while objecting.
How Do a Second Administrative Review and Judicial Review Differ?
A second administrative review asks the CRA to reconsider a VDP decision. You write to the Assistant Director of the Shawinigan National Verification and Collections Centre, and a new officer not involved in the first decision may conduct the review. You can add representations.
Judicial review goes to the Federal Court within 30 days of the CRA decision, and the CRA recommends seeking a second administrative review first. The Court cannot substitute its own decision; it can send the matter back for reconsideration by another official. Our tax law practice can represent a client through these steps.
Assess Your Disclosure Options Before Responding
The safest sequence after CRA contact is to identify exactly what the CRA has raised, then decide whether each issue can still be disclosed before you reply. A response sent without that analysis can turn an unprompted issue into a prompted one, or concede facts that affect later relief.
Before responding, a Canadian tax lawyer reviewing your file should confirm:
- whether the letter is an education letter, a review, or an audit
- which issues it identifies and which it does not
- whether a related corporation or shareholder is under audit
- whether supporting documentation for six, ten, or four years is available
- how payment or a payment arrangement will be handled
Can I disclose an unrelated tax error while my business is being audited?
Yes, the audit bar applies only to the information under audit, so an unrelated issue can still qualify. Whether it is treated as unprompted depends on whether the CRA has communicated about that specific issue.
Does a CRA reminder letter automatically make my application prompted?
No. A general education letter keeps an application unprompted, while a letter identifying a specific error or setting a deadline to correct one makes it prompted.
Can a shareholder apply if the CRA is auditing their corporation?
It depends on the subject matter. An audit of a related taxpayer in respect of the information being disclosed makes the shareholder's application involuntary, but personal issues outside the corporate audit may still qualify.
Can I apply if I cannot pay all the tax owing immediately?
Yes, you can include a request for a payment arrangement with Form RC199. CRA collections officials review each request, and approval is not guaranteed.
Does submitting Form RC199 stop a CRA audit?
No. The CRA reserves the right to audit or verify any information in a VDP application, and the VDP conducts limited scope reviews of penalty and interest relief only.
Can I amend my return instead of making a voluntary disclosure?
You can request changes to an assessed return through your CRA account or by mail. A VDP application is the route that offers formal penalty and interest relief and protection from prosecution for eligible disclosures.