CRA VDP for Cross-Border Filers: Coordinating with IRS Streamlined

If you are a US person with Canadian filing obligations (or a Canadian resident with US filing obligations) and you are behind on both sides, you have two simultaneous compliance problems that need to be solved together. The CRA has its Voluntary Disclosures Program (VDP). The IRS has its Streamlined Filing Compliance Procedures. Both offer penalty relief for taxpayers who come forward voluntarily before being contacted by the tax authority. But the two programs have different rules, different timelines, and different disclosure requirements, and filing one can affect the other through the information-exchange provisions of Article XXVII of the Canada-US treaty. No competitor covers this coordination problem. This page does.

Why do I need both programs?

A US citizen living in Canada who has never filed US returns is behind on the US side (missing 1040s, FBARs, Forms 8938, possibly Forms 5471 or 3520). If they also failed to report US-source income on their Canadian return, or missed T1135 filings for US accounts, they are behind on the Canadian side too. Fixing only the US side (through streamlined) leaves the Canadian non-compliance unresolved. Fixing only the Canadian side (through VDP) leaves the US non-compliance unresolved.

The same applies in reverse: a Canadian resident who moved to the US and did not file Canadian departure returns, did not report the deemed disposition, or did not disclose Canadian accounts on FBARs and Forms 8938 has bilateral non-compliance.

Each program has its own penalty relief structure: IRS Streamlined Foreign Offshore (SFOP) carries zero penalty; Streamlined Domestic (SDOP) carries 5% of the highest aggregate balance. CRA VDP Track 1 (limited relief) waives prosecution and gross negligence penalties but not the underlying tax or interest; Track 2 (general) waives penalties for the disclosure period and may reduce interest. The combined result depends on the facts, and getting the combination wrong can mean paying penalties that were avoidable.

What does the CRA VDP require?

The CRA’s VDP has four conditions for a valid voluntary disclosure:

1. Voluntary. The disclosure must be made before the CRA has started any enforcement action (audit, review, or investigation) related to the information being disclosed. If the CRA has already contacted you about the specific issue, the disclosure is not voluntary.
2. Complete. The disclosure must include all unreported income, all unfiled returns, and all unfiled information returns (T1135, T1134, T1141, T1142) for all years of non-compliance. You cannot cherry-pick which years or which items to disclose.
3. Involve a penalty. There must be a potential penalty (or penalty and interest) associated with the non-compliance. A disclosure that results only in additional tax with no penalty does not qualify for VDP (because there is nothing to waive).
4. Include information that is at least one year overdue. The disclosure must relate to a return or information that was due at least 12 months before the application.

The application is filed on Form RC199 (Voluntary Disclosures Program Application). If accepted, the CRA processes the returns, assesses the tax and interest, and waives the penalties. Track 1 (limited relief) typically applies when the disclosure involves income that was actively hidden (offshore accounts, undisclosed business income). Track 2 (general) applies to most other cases, including late-filed information returns and inadvertent omissions.

For details on VDP tracks, see CRA VDP Track 1 vs Track 2.

What does IRS Streamlined require?

The IRS Streamlined procedures require:

1. Three years of amended or delinquent tax returns (1040, 1040-NR).
2. Six years of delinquent FBARs (FinCEN 114).
3. A non-willfulness certification (Form 14653 for SFOP, Form 14654 for SDOP), signed under penalty of perjury.
4. Payment of all tax and interest due on the three amended years.
5. For SDOP only: payment of the 5% miscellaneous offshore penalty on the highest aggregate balance of unreported foreign financial assets during the six-year FBAR period.

The taxpayer must not be under IRS civil examination or criminal investigation. The certification of non-willfulness is the critical document: it must be truthful and detailed.

For costs and scope, see what streamlined filing costs for Canadians.

What is the information-exchange risk?

Article XXVII of the Canada-US treaty allows the CRA and IRS to exchange information relevant to the enforcement of each other’s tax laws. This exchange happens automatically (through the Common Reporting Standard and FATCA) and on request (when one country asks the other for specific information about a taxpayer).

The practical risk: if you file a CRA VDP application disclosing unreported US-source income, the CRA now knows about that income. If the CRA shares that information with the IRS under the treaty, the IRS may learn about your US non-compliance before you file the streamlined package. If the IRS contacts you based on that information, you may no longer qualify for streamlined (because streamlined requires that you not be under examination).

The reverse is also possible: filing streamlined with the IRS, which includes amended returns showing Canadian income, could prompt the IRS to share information with the CRA, potentially triggering CRA enforcement before your VDP application is filed.

The actual probability of this happening is low for most individual cases. Treaty information exchange for individual non-compliance cases is not instantaneous; the automatic exchange (CRS/FATCA) reports account data, not voluntary disclosure filings. But the risk is non-zero, and for large-dollar cases or cases involving active concealment, the risk is higher.

How should I sequence the filings?

The safest approach is to prepare both filings in parallel and submit them within a short window (ideally the same week). This minimizes the period during which one side has been disclosed but the other has not.

Step 1: Prepare all returns and forms for both countries. This means the three years of US amended returns, six years of FBARs, the non-willfulness certification, the Canadian VDP application (Form RC199), and however many years of Canadian returns or amendments need to be filed. Prepare everything before filing anything.

Step 2: File the CRA VDP application. The CRA VDP has a pre-disclosure stage: you submit Form RC199 with enough information for the CRA to confirm the disclosure qualifies, but without your name (in Track 2) or with limited identifying information. If the CRA accepts the application in principle, you then have 90 days to submit the complete returns and supporting documentation. Filing the VDP first (in the pre-disclosure, anonymous stage) establishes voluntariness before any possible information exchange from the US side.

Step 3: File the IRS streamlined package. Submit the three amended returns, six years of FBARs, the certification, and payment. There is no pre-disclosure or anonymous stage for streamlined; the filing is the disclosure.

Step 4: Complete the CRA VDP by submitting the full returns and documentation within the 90-day window.

This sequencing works because: (a) the CRA VDP’s pre-disclosure stage does not generate identifiable information that could be exchanged with the IRS, (b) the IRS streamlined filing is a one-step process with no waiting period, and (c) both filings are submitted close enough in time that neither country’s enforcement arm can act on the other’s disclosure before both are filed.

What are the common mistakes?

Filing one side and forgetting the other. The most common mistake. A US tax firm files streamlined and considers the job done. The Canadian non-compliance (missing T1135s, unreported foreign income on the Canadian return) remains. The CRA’s automatic exchange will eventually receive data about the US accounts, and the window for voluntary disclosure will close.

Filing streamlined before VDP. If the streamlined filing triggers a CRA inquiry (through information exchange), the VDP application may not qualify as voluntary. The risk is low but real, and preparing both in advance eliminates it.

Inconsistent positions. The US return reports income one way (for example, treating stock options as capital gains), and the Canadian return reports it differently (as employment income). Both returns should be prepared together by a professional who understands the treaty and the sourcing rules, so the positions are consistent. Inconsistent positions invite audit on both sides.

Forgetting about information returns. Streamlined fixes FBARs and Forms 8938, but it does not automatically fix Form 5471 (for Canadian corporations), Form 3520 (for TFSAs, RESPs, and other potential “foreign trusts”), or Form 8621 (for PFICs held in Canadian mutual funds). If these forms were required and were not filed, they need to be included in the streamlined package or filed separately through the delinquent information return procedures.

Not coordinating foreign tax credits. The US returns filed through streamlined will claim foreign tax credits for Canadian taxes paid. The Canadian returns filed through VDP may claim credits for US taxes paid. The two credit calculations must be consistent with each other and with the treaty’s Article XXIV. If the US return claims a credit for $10,000 of Canadian tax, the Canadian return should show that $10,000 was actually assessed and paid.

What if only one side needs a formal program?

Not every bilateral non-compliance requires both VDP and streamlined. Common scenarios:

US returns missing, Canadian returns correct: IRS streamlined only. The Canadian returns are up to date and the T1135s were filed. No CRA program is needed. File streamlined for the US side and amend the Canadian returns only if the US streamlined changes the foreign tax credit calculation.

Canadian returns missing or incorrect, US returns correct: CRA VDP only. The US returns were filed on time with correct income. File VDP for the Canadian corrections. No IRS program is needed, though you may need to amend the US returns if the Canadian reassessment changes the foreign tax credit.

Both sides behind, but only FBAR is missing on the US side: If the US returns were filed and the income was reported, but FBARs were not filed, the delinquent FBAR submission procedure (no penalty, no amended returns) may be sufficient on the US side. The Canadian side still needs VDP if T1135s or income was unreported.

What should I do next?

Map the non-compliance on both sides: what returns are missing or incorrect, what information returns were not filed, what income was unreported, and what accounts were not disclosed. Determine which program applies to each side. Prepare all returns in parallel before filing either one. Submit the CRA VDP pre-disclosure first, then the IRS streamlined package, then complete the CRA VDP submission.

If you are unsure whether both programs are needed, or which IRS program applies (delinquent FBAR vs. streamlined vs. voluntary disclosure), the FBAR penalty decision tree maps the US-side paths.

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.