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The Canada Revenue Agency (CRA)'s Voluntary Disclosures Program (VDP) gives taxpayers the opportunity to voluntarily correct errors or omissions in their tax filings. The VDP applies to disclosures relating to income tax, GST/HST, withholding taxes and various other taxes administered by the CRA.
While the VDP process has been in existence for quite some time, the CRA recently introduced updates to the program. These changes, outlined in the new Information Circular IC00-1R7 and the updated GST/HST Memorandum 16-5-1, apply to VDP applications received on or after October 1, 2025. The changes are consistent across income tax and GST/HST and are intended to simplify the process by relaxing the requirements for a valid disclosure and providing greater relief from interest and penalties.
Summary of key takeaways
- VDP applications are now more likely to be accepted under the updated guidelines, as the new "unprompted" and "prompted" application regime has relaxed eligibility requirements.
- Greater relief from penalties and interest is now available. All VDP applications are now eligible for up to 100% penalty relief, and those previously excluded from interest relief may now qualify.
- VDP applications now require mandatory completion of Form RC199 and the inclusion of supporting documentation for the most recent applicable years.
Replacement of "General" and "Limited" Programs with "unprompted" and "prompted" regime
The updated VDP has eliminated the General and Limited Programs, and now determines the extent of relief based on whether an application is "unprompted" or "prompted." Under the prior guidance, the General Program was designed for taxpayers who made unintentional errors, while the Limited Program addressed cases of intentional non-compliance. This new regime turns on whether the CRA has flagged specific compliance issues triggering the taxpayer to come forward and appears to be an attempt to encourage more voluntary disclosures to be made. All applications eligible for relief are granted protection from prosecution and are not subject to gross negligence penalties on the information disclosed.
An "unprompted" application is one submitted without prior notification about an identified compliance issue related to disclosure, or one submitted following an education letter or notice for general guidance or information. An unprompted application is eligible for general relief and will receive 75% relief of the applicable interest and 100% relief of the applicable penalties.
A "prompted" application is one submitted following verbal or written communication (excluding education letters) about an identified compliance issue related to disclosure that identifies specific errors or omissions or contains a deadline to correct an error or omission, or after the CRA has already received information from third party sources about a specific taxpayer's non-compliance. A prompted application is eligible for partial relief and will receive 25% relief of the applicable interest and up to 100% relief of the applicable penalties.
These changes ease the eligibility requirements for VDP applications, allowing many cases that were previously ineligible to now qualify. Under the former rules, an application would be ineligible if the taxpayer was aware of an "enforcement action," including requests or demands about unfiled returns or "other tax affairs," and direct contact from the CRA about non-compliance. Now, an application is only considered ineligible if an audit or investigation has already been initiated against the taxpayer or a related taxpayer in respect of the information being disclosed. Importantly, corporations with gross revenue exceeding CA$250 million were generally assessed under the Limited Program per the old policy. The revised VDP removes this revenue threshold entirely, meaning large corporations are no longer presumptively disadvantaged.
Wash transactions
GST/HST wash transactions (generally those where GST/HST that was not properly charged or reported would have been fully returned to the recipient in the form of an input tax credit) are eligible for 100% relief of the applicable penalties and interest under a valid VDP application. Where a wash transaction meets the CRA's conditions, such as the recipient being fully ITC-eligible, the taxpayer having a good compliance history and the error not being due to negligence, the CRA will normally reduce or cancel penalty and interest.
Clarification on application requirements
The revised VDP now specifies that taxpayers must complete Form RC199, Voluntary Disclosures Program Application and must include appropriate supporting documentation to correct non-compliance, as follows:
- Foreign-sourced income or assets: Documentation for the most recent ten years
- Canadian-sourced income or assets: Documentation for the most recent six years
- GST/HST: Documentation for the most recent four years
Documentation for tax years that are accurate and complete do not need to be submitted. The CRA may also request documentation for other tax years and any other additional documentation relevant to the disclosure at its discretion.
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