Canada Revenue Agency Overhauls the Voluntary Disclosures Program: Key Highlights

To make its voluntary disclosure program (VDP) more attractive, the Canada Revenue Agency (CRA) has implemented significant changes to the program effective October 1, 2025. At a high level, the new VDP:

• Is less restrictive (including for large corporations, as the gross revenue of a corporation will no longer be taken into account)
• Offers greater interest relief
• Allows the CRA to consider subsequent applications from the same taxpayer if the circumstances are beyond the taxpayer’s control or related to a different matter than a previous application
• Provides clarity on which supporting documents to provide
• Requires only a new simplified form

The VDP provides an opportunity for taxpayers to inform the CRA about errors or omissions in their tax obligations and to make corrections without penalty. Details about the new VDP (as published by the CRA in IC00-1R7 - Voluntary Disclosures Program and GST/HST Memorandum 16-5-1 Voluntary Disclosures Program) are outlined below.

“Prompted” and “Unprompted” Disclosures

Under the new VDP, two levels of relief are available: general relief and partial relief. The level of relief available depends on whether the application is “prompted” or “unprompted.”

“Unprompted” applications are eligible for greater interest relief than “prompted” applications. Specifically, unprompted applications are eligible for general relief (75% interest relief and 100% penalty relief) as compared to prompted applications, which are eligible for partial relief (25% interest relief and up to 100% penalty relief). Gross negligence penalties will not apply in either case.

An “unprompted” application is made when there has been no communication between the CRA and the taxpayer about an identified compliance issue related to the disclosure. An application would be considered unprompted if it is made following an “education letter” or notice that offers general guidance and filing information related to a particular topic. Previously, this was a factor that could result in an application being considered under the Limited Program (discussed below).

A “prompted” application is generally made following communication about an identified compliance issue related to the disclosure, which may include letters or notices (excluding education letters) to the taxpayer with one or more of the following: (1) an identification of a specific error or omission found on the taxpayer’s account and/or (2) a deadline to correct an error or omission, where there is an expectation for the taxpayer to comply. The CRA also considers applications to be prompted if made after the CRA has already received information from third-party sources regarding the potential involvement of a specific taxpayer (or of a related taxpayer) in tax non-compliance.

These categories of “prompted” and “unprompted” disclosures provide significantly more scope for taxpayers to make voluntary disclosures and obtain interest relief, compared to the previous program. The previous program treated all “prompted” applications as ineligible for the VDP because they were not considered “voluntary.”

For GST/HST, applications in respect of “wash transactions” receive 100% relief of the applicable penalties and interest where the transaction would be eligible for a reduction of penalty and interest under the policy set out in GST/HST Memorandum 16-3-1. The relief available to wash transactions was also available under the previous VDP.

Non-Eligible Circumstances

The new VDP notes that the following circumstances would not be eligible for relief:

• The application relates to returns resulting in a refund or with no taxes or penalties owing
• The taxpayer is seeking relief on existing penalties and/or interest that have already been assessed
• The application seeks to make or alter an election under an act administered by the CRA
• There is an insolvency event for the years involved in the disclosure
• The application relates to matters covered under an advance pricing arrangement with the CRA or any other tax administration within or outside Canada
• The application depends on an agreement being made at the discretion of the Canadian competent authority under a provision of a tax treaty

Additional Conditions for an Application

In addition to the requirement that the voluntary disclosure be “voluntary” (either prompted or unprompted), the following conditions must be met to qualify for relief under the new VDP:

• The application must include information that relates to a tax period that is at least one tax period past the due date for filing
• The application must include an error or omission leading to applicable interest charges, penalties or both
• Taxpayers must disclose all known errors and omissions in their tax obligations, including any arm’s length and non-arm’s length transactions or circumstances relating to the errors and omissions
• Taxpayers must provide supporting documents and use the new simplified Form RC199, Voluntary Disclosures Program (VDP) Application
• Taxpayers must provide relevant information for all required tax years and respond comprehensively and promptly to all CRA requests for information for the most recent 10 years (errors or omissions relating to assets or income that are located outside Canada), six years (Canadian-sourced income or assets) or four years (GST/HST)
  • Information about a tax year within the timeframes with no errors or omissions does not need to be included
• Taxpayers must, if applicable, make a payment or a request for a payment arrangement of the estimated taxes owing
  • Previously, if a taxpayer made a payment arrangement, the taxpayer had to make full disclosure and provide evidence of income, expenses, assets and liabilities supporting the inability to make payment in full. In some cases, the payment arrangement had to be supported by adequate security. This requirement for proof of income and potential security has been removed in the new VDP

Next Steps

With the implementation of the new VDP, taxpayers who may be subject to interest and/or penalties as a result of errors or omissions in their tax obligations should consider submitting an application. While the amount of effort required to file a valid voluntary disclosure is not negligible, the relaxed rules around “voluntariness” and the greater amounts of interest relief may make a voluntary disclosure more attractive than it would have been under the previous program.

For more information, please contact the authors or any other member of our Tax group.