GST/HST Voluntary Disclosure: Correcting Sales Tax Errors – A Complete Guide by a Montreal CPA Firm Near You

Introduction

GST/HST mistakes are extremely common—and extremely costly. Whether you failed to file returns, underreported sales, overclaimed Input Tax Credits (ITCs), misapplied place-of-supply rules, or collected GST/HST but didn’t remit it, the penalties and interest can grow quickly. Fortunately, the CRA Voluntary Disclosures Program (VDP) offers a legal and strategic way to correct GST/HST errors before CRA contacts you, eliminating penalties and reducing long-term risk. This guide explains how GST/HST Voluntary Disclosure works, which mistakes it applies to, and how to maximize your chances of acceptance.

Legal and Regulatory Framework

GST/HST voluntary disclosures operate under Section 281.1 of the Excise Tax Act, which allows CRA to grant relief for penalties and some interest when taxpayers come forward voluntarily. The GST/HST VDP follows CRA’s VDP policy (IC00-1R6) and includes two streams:

1. General Program – provides penalty relief, partial interest relief, and no prosecution.

2. Limited Program – applies to more serious non-compliance and provides reduced relief.
   To qualify, the disclosure must be voluntary, complete, and involve a penalty-eligible error such as unfiled returns, incorrect ITCs, or unreported taxable sales.

Key Court Decisions

While GST/HST VDP decisions are administrative and not court-decided, several cases highlight CRA’s authority to enforce sales tax compliance. In Precision Gutters v. Canada, ITCs were denied due to improper invoices, emphasizing strict documentation requirements. In R. v. Ling, the Supreme Court upheld CRA’s indirect audit methods—showing why voluntary disclosure before an audit is critical. In Dunmill Health Care Corp. v. Canada, late filings and remittances resulted in significant penalties, reinforcing the value of VDP for avoiding them.

When You Should Use the GST/HST VDP

You should consider VDP if you: failed to file GST/HST returns for one or more periods, underreported sales or overstated expenses, claimed ITCs without proper invoices, collected GST/HST but did not remit it, misapplied tax rates or place-of-supply rules, incorrectly treated taxable supplies as exempt, claimed ITCs for personal expenses, failed to register for GST/HST when required, or made bookkeeping errors affecting GST/HST filings. If CRA contacts you first, VDP is no longer available.

Eligibility Requirements

To qualify for GST/HST VDP, the disclosure must:

• Be voluntary (submitted before CRA contacts you)

• Be complete (all periods and errors disclosed)

• Involve potential penalties

• Include full payment or a payment arrangement

• Be at least one reporting period old

• Include proper documentation and calculations
  Partial or selective disclosure leads to rejection.

Types of Relief Available

General Program

• Penalty relief (late filing, failure to remit, interest penalty portions)

• Partial interest relief (usually 50% for older years)

• No prosecution

Limited Program

• Penalties reduced (but not waived)

• No interest relief

• No prosecution
  CRA typically uses Limited Program for cases involving deliberate avoidance, large GST discrepancies, or unreported cash businesses.

How to File a GST/HST Voluntary Disclosure

The process includes:

1. Gathering all GST/HST returns for the affected periods

2. Reconstructing sales and expenses using accounting records, bank statements, and merchant reports (Shopify, Square, PayPal, Stripe)

3. Preparing corrected returns and supporting calculations

4. Filing Form RC199 for VDP with a detailed disclosure letter

5. Submitting payments or arranging a payment plan

6. Waiting for CRA review and acceptance
   The disclosure letter must explain errors, circumstances, and corrective measures taken to prevent recurrence.

Documentation Required

CRA requires: invoices, receipts, bank statements, merchant processor summaries, ITC calculations, sales ledgers, contracts, bookkeeping files, GST/HST returns, and explanations for discrepancies. Poor documentation increases the risk of rejection.

Common GST/HST Errors the VDP Corrects

• Failure to collect tax on taxable supplies

• Incorrect use of 0% tax on services/sales that were actually taxable

• Claiming ITCs without proper invoices

• Mistaking personal expenses as business expenses

• Missing returns for years

• GST on real estate assignments

• E-commerce sales tax misconfigurations

• Interprovincial tax rate mistakes

• GST collected but not remitted (“trust tax” violation)

Risks of Not Using VDP

Ignoring GST/HST mistakes can lead to:

• Gross negligence penalties (25% or more)

• Daily compounded interest

• GST/HST collections enforcement

• Freezing of bank accounts

• Seizure of receivables

• Court-ordered compliance actions

• Criminal prosecution in severe cases
  VDP dramatically reduces these risks by offering a clean compliance start.

When VDP is NOT the Right Option

VDP is not appropriate when errors result only in refunds (no penalties apply), when CRA has already contacted you, when only minor adjustments are needed (file amendments instead), or when fraudulent intent exists (legal representation required).

Mackisen Strategy

At Mackisen CPA Montreal, we prepare complete GST/HST VDP submissions, reconstruct missing records, recalculate ITCs, correct sales and expense discrepancies, draft persuasive disclosure letters, negotiate payment arrangements, and defend clients during CRA reviews. We ensure VDP acceptance by presenting a full, transparent, and well-documented disclosure package.

Real Client Experience

A Montreal contractor avoided $38,000 in penalties by correcting two years of unfiled GST returns via VDP. An e-commerce retailer fixed platform tax errors and prevented a GST audit. A consultant recovered eligibility for ITCs after reconstructing missing invoices. A real estate investor avoided gross negligence penalties for GST on assignment sales.

Common Questions

Does VDP eliminate all GST penalties? In the General Program—yes. Can CRA reject my application? Yes, if incomplete or after CRA contact. Do I need to pay immediately? CRA prefers payment but may allow arrangements. Can I apply anonymously first? Yes—the “no-name” option allows preliminary discussions.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses correct GST/HST errors safely and strategically through the Voluntary Disclosures Program. We protect your cash flow, eliminate penalties, and restore clean compliance with CRA.