Grewal – Federal Court finds that an accepted voluntary disclosure that included loans did not stop CRA from later assessing s. 163(2) penalties for failure to include them in income

A voluntary disclosure included a description of various loans and did not volunteer that they gave rise to taxable benefits. After the voluntary disclosure was accepted through reassessments, a subsequent audit of one of the taxpayer’s companies caused CRA to conclude that these loans gave rise to additional income under s. 246(1) of $15M to the taxpayer for years that had been covered by the voluntary disclosure, and CRA not only reassessed for these s. 246(1) benefits, but also included gross negligence penalties of over $3M.

In dismissing the taxpayer’s application for judicial review of the decision to impose the penalties, Shirzad J stated (at paras 37 and 38):

… If taxpayers could re-characterize taxable income or benefits as non-taxable benefits in their applications to the VDP and thereby escape penalties from future audits for having “disclosed” the amounts in this application, it would be contrary to the purpose of the VDP and its public policy rationale, which is meant to promote compliance with Canada’s tax laws … .

[T]o interpret the Information Circular as promising protection from penalties even on the non-taxable amounts disclosed by the taxpayer would put taxpayers applying to the VDP in a better position than the ordinary taxpayers.

Neal Armstrong. Summary of Grewal v. Canada (National Revenue) 2020 FC 356 under s. 220(3.1).