CRA Voluntary Disclosures for Cross-Border Filers: Coordinating With an IRS Streamlined Submission So Neither Agency Hears It First From the Other

Cross-border catch-ups are often two-sided. A US citizen in Canada who never filed US returns has usually filed Canadian returns, but may have omitted the US-source income (a US brokerage account, a US pension) or the T1135. A Canadian who moved to the US and never reported the Canadian accounts on the US side may also have left Canadian rental income or the departure return undone. Each side has a program: the IRS's streamlined procedures and the CRA's Voluntary Disclosures Program. Each requires that the agency has not already contacted the taxpayer about the matter. The two agencies exchange information under the treaty and FATCA. A disclosure on one side can prompt an inquiry on the other, which forecloses the other side's program. The project is sequenced so both submissions are filed before either agency writes.

Key takeaways

• The CRA VDP: a disclosure, before the CRA has contacted the taxpayer, of an omission or error that involves a penalty and is at least one year past due; must be complete (all years and all issues) and accompanied by payment or a payment arrangement. Relief: no penalties and partial interest relief (the 2025 revision distinguishes unprompted from prompted applications, with fuller relief for unprompted). Filed on Form RC199 with the corrected returns.
• The IRS streamlined: three returns, six FBARs, certification; no penalties (foreign track) or 5% (domestic); not available if the IRS has made contact or opened an examination.
• Information flows both ways: FATCA reports from Canadian banks reach the IRS; the treaty's exchange of information article lets either agency request the other's records; 1042-S and NR4 data are matched. A disclosure that assesses new income on one side is visible to the other.
• Sequence: prepare both submissions together; file both within days of each other; the CRA VDP is filed before the streamlined package is mailed if the Canadian omission is the larger, and vice versa; neither is delayed until the other is processed.
• Consistency: the same accounts, values, dates, and income appear in both; the foreign tax credits on each side are computed from the other side's corrected figures.
• What the VDP does not cover: the departure return itself (a late departure return is filed with the VDP if departure tax was omitted); the T1135 penalty is covered.

The CRA program

The Voluntary Disclosures Program accepts applications from taxpayers who wish to correct inaccurate or incomplete information or disclose information not previously reported, where the disclosure is voluntary (no CRA enforcement action related to the disclosed matter has begun, and the CRA has not contacted the taxpayer about it), complete (all years and all matters, not a selective disclosure), involves a penalty, and includes information at least one year past due. The application is Form RC199 with the corrected or new returns and payment of the estimated tax (or a payment arrangement).

Relief under the program as revised in October 2025: an unprompted application (the taxpayer comes forward with no prior CRA communication) receives full (100%) penalty relief and 75% interest relief; a prompted application (after a CRA letter, education campaign, or other communication that did not amount to enforcement) receives up to full penalty relief and 25% interest relief. Gross negligence penalties, late-filing penalties, T1135 penalties, and other penalties are waived; interest is partly relieved; the tax is assessed. Criminal prosecution is not pursued for a matter validly disclosed.

Cross-border matters commonly disclosed: unreported US-source income (a US brokerage account's dividends, a US pension, US rental income); missed T1135s; a departure return never filed (with the departure tax); Section 216 rental filings for a non-resident; unreported foreign affiliate income (T1134, FAPI).

The IRS program

The streamlined procedures cover the US side: unreported foreign income, missed FBARs and information returns, for three years of returns and six of FBARs, with the non-willfulness certification. The program is unavailable if the IRS has opened an examination or made contact about the foreign matters.

Why they must be coordinated

Three channels carry information between the agencies. Under FATCA, Canadian financial institutions report US-person accounts to the CRA, which sends them to the IRS annually; the IRS therefore knows about a US citizen's Canadian accounts before the streamlined submission. Under the treaty's Article XXVII, either agency can request the other's records on a taxpayer, and each exchanges information spontaneously when an audit turns up something relevant to the other. And the slips (1042-S from US payers; NR4 from Canadian payers) are matched.

A CRA VDP that assesses five years of unreported US dividend income creates a record the IRS can see: a Canadian resident with a US brokerage account (which the US broker also reported on 1042-S). If that taxpayer is a US citizen who has not yet filed the streamlined submission, the IRS's contact after seeing the assessment forecloses the streamlined program. The reverse applies: a streamlined submission that reports Canadian rental income to the IRS, from a Canadian who never filed the Section 216 return, is a record the CRA can request.

Sequencing

The two submissions are prepared as one file with one set of facts. The Canadian corrected returns produce the Canadian tax figures that become the foreign tax credit on the US returns; the US corrected returns produce the US tax that becomes the credit on the Canadian returns (where the taxpayer was a Canadian resident with US-source income). Both are finalized together, then filed within days: the VDP application (Form RC199 with the returns) to the CRA and the streamlined package to the IRS. Neither waits for the other's processing.

Where one side is clean (a US citizen in Canada whose Canadian returns were complete and who only needs the streamlined submission), only the one is filed, but the T1135 question is checked: a US citizen in Canada with US accounts above $100,000 may have missed the T1135 too.

Consistency

The account inventory, the values at each year-end, the income by year, the dates of residency changes, and the narrative of what happened must match across the two submissions. The CRA's VDP application asks for the circumstances; the IRS's Form 14653 asks for the reasons; the two accounts of the same facts must be the same account. An inconsistency found by one agency and shared with the other undermines both.

Worked example

A US citizen who moved to Vancouver in 2015 has filed Canadian returns but omitted a $400,000 US brokerage account's dividends and gains (about $12,000 a year) and never filed a T1135; she has never filed a US return.

• Canadian side. VDP (unprompted; the CRA has not written): amended T1s for the open years adding the US income, with a foreign tax credit for US tax (none was paid, so none; the US tax to be paid on the streamlined returns for the three overlapping years becomes a credit on those years' Canadian returns); T1135s for each year; the tax assessed with partial interest relief; no penalties.
• US side. SFOP: three 1040s reporting worldwide income (BC salary with the credit; the US brokerage income as US-source, taxed in the US; the Canadian accounts; the RRSP; the TFSA with trust forms); six FBARs; Form 14653. No penalties.
• Sequencing. Both prepared together; the US returns' tax on the brokerage income computed first (it is the credit on the Canadian amended returns for 2023 to 2025); both filed the same week.
• Consistency. The same brokerage values, the same income by year, the same narrative (a US citizen who did not know US citizens file, and did not know US accounts were foreign property for Canada).

Official sources

Effective October 1, 2025, the CRA's Voluntary Disclosures Program grants an "unprompted" application general relief — "75% relief of the applicable interest" and "100% relief of the applicable penalties" — and a "prompted" application partial relief — "25% relief of the applicable interest" and "up to 100% relief of the applicable penalties"; in both cases the tax owing must be paid. — Canada Revenue Agency, Voluntary Disclosures Program, https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/voluntary-disclosures-program/changes-vdp.html

The IRS states that a US citizen or lawful permanent resident meets the non-residency requirement where, "in any one or more of the most recent three years for which the U.S. tax return due date (or properly applied for extended due date) has passed," the individual "did not have a U.S. abode and the individual was physically outside the United States for at least 330 full days." Eligible taxpayers "will not be subject to failure-to-file and failure-to-pay penalties, accuracy-related penalties, information return penalties, or FBAR penalties." — Internal Revenue Service, U.S. Taxpayers Residing Outside the United States, https://www.irs.gov/individuals/international-taxpayers/us-taxpayers-residing-outside-the-united-states

Article XXVII of the Canada-United States Tax Convention provides for the exchange of information between the competent authorities of the two countries for the purposes of carrying out the Convention and the domestic tax laws of each country. — Canada-United States Tax Convention, Article XXVII, https://www.canada.ca/en/department-finance/programs/tax-policy/tax-treaties/country/united-states-america-convention-consolidated-1980-1983-1984-1995-1997.html

Practitioner note

A two-sided catch-up is one project or it is two problems, and the failure mode is a Canadian VDP filed in March that produces an IRS letter in September, after which the streamlined program is closed. We prepare both packages together, compute the credits across them, and file both in the same week, with the same facts in each. The agencies talk to each other; the two submissions have to say the same thing.

See also: For the full picture of what each agency charges, see late-filing penalties on both sides of the border, and browse every cross-border tax topic guide, organized by situation.

Next step

Fairlight prepares the coordinated CRA Voluntary Disclosure and IRS streamlined submission, prepared as one file and filed together. See cross-border pricing or book a call.