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On September 10, 2025, the Canada Revenue Agency ("CRA") announced substantial changes to its Voluntary Disclosures Program ("VDP"). In summary, these significant changes seek to broaden the previously restrictive program, making it easier for taxpayers to seek relief when they have made errors or omissions in fulfilling their tax obligations.
Effective October 1, 2025, the CRA will begin applying its revised policies for income tax in Information Circular IC00-1R7 ("IC00-1R7") and for excise tax in GST/HST Memorandum 16-5-1 ("GST/HST Memo 16-5-1") to VDP applications. VDP applications received prior to October 1, 2025 will continue to be considered for VDP relief under the older, more restrictive program. VDP applications made as of October 1, 2025 will also need to include the CRA's updated VDP application form ("Form RC199") which will be available October 1, 2025.
Taxpayers are reminded that the VDP is a form of discretionary relief of interest or penalties for up to the last 10 calendar years, governed by subsection 220(3.1) of the Income Tax Act and section 281.1 of Part IX of the Excise Tax Act.
Key Changes to the VDP
The VDP changes for income tax and GST/HST include three key shifts, which are favourable to taxpayers:
- The "General Relief" and "Limited Relief" Programs have been replaced with "Prompted" and "Unprompted" VDP application tracks which are generally more favourable to taxpayers;
- The interest and penalty relief available to successful VDP applicants has been increased; and
- The strict "voluntary" requirement for successful VDP applications has been softened so that the commencement of an audit may not preclude a successful VDP application.
Comparison of the Old and New VDP
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Old Program |
New Program |
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What relief is available? |
General Relief Program: 100% penalty relief and 50% interest relief for inadvertent non-compliance, but not generally available for large corporations. Limited Relief Program: 100% penalty relief only for gross negligence and no interest relief, available for intentional conduct or for a corporation with gross revenues greater than $250M in at least 2 of its last 5 taxation years. Wash Transaction Relief Program (only for GST/HST): 100% relief from penalties and interest for wash transactions that meet the requirements under GST/HST Memorandum 16-3-1. |
"Unprompted": 100% penalty relief and 75% interest relief available to all applicants. Unprompted refers to no communication from the CRA about the identified compliance issue/error or only a general education letter or notice provided about the topic at issue. "Prompted": up to 100% penalty relief and 25% interest relief available to all taxpayers and not limited to gross negligence penalties. Prompted refers to any communication by the CRA about the specific compliance issue/error identified, including specific notice of the error, a deadline to correct the error, or information already received by the CRA from a third party source regarding potential non-compliance. Wash Transaction Relief Program (only for GST/HST): 100% relief from penalties and interest for wash transactions that meet the requirements under GST/HST Memorandum 16-3-1. |
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What are the conditions for a VDP? |
VDP applications must be voluntary. Not considered voluntary if an "enforcement action" exists (includes any audit action or request for information or any contact from the CRA relating to the non-compliance) for the taxpayer, a related party, or a third-party where information about the taxpayer is sufficiently related or already received by the CRA from a third party. |
VDP applications must be voluntary. Notably, the disclosure is still voluntary where the CRA prompts the taxpayer about the error. |
GST/HST Specific Relief
An issue specific to GST/HST is penalties relating to a wash transaction, which occurs where a supplier failed to charge and collect the GST/HST from a registrant that would be entitled to the input tax credit, or where the wrong entity claimed the input tax credits in a closely related group. In essence, there is no tax leakage to the government.
For a VDP application pertaining to an eligible GST/HST wash transaction, there is 100% penalty relief and 100% interest relief.
Implications
The revised "voluntary" requirement for a valid VDP application suggests that even if a taxpayer receives an initial audit letter, the taxpayer can still apply for "unprompted" VDP relief (provided the topic of the audit does not relate to the information disclosed in the VDP application). Additionally, even where the taxpayer receives a specific issue letter (but not during an audit), the taxpayer may still make a "prompted" VDP application that provides penalty relief and some interest relief. For example, a letter from the CRA for failure to file a tax return should still result in a prompted VDP application that is voluntary. The CRA has clarified that it does not consider a VDP application to be voluntary only if an audit or investigation has been initiated against the taxpayer or a related person in respect of the information being disclosed.
Applicants may still engage in preliminary no-name discussions with the CRA. However, such no-name discussions remain informal and non-binding.
Applicants should also be aware that there is no right of objection to dispute a reassessment made under the discretionary relief provisions of the Income Tax Act or Part IX of the Excise Tax Act. If the Minister does not provide relief on a discretionary basis, the only avenue for redress is a request for a second-level administrative review, followed by an application to the Federal Court for judicial review, if required.
Areas of Improvement
While the VDP increases relief to taxpayers, and expands the program to better facilitate disclosures by large corporations, one area that still requires improvement is access to relief for registered charities where the consequence of the non-compliance is deregistration or another sanction that is not a penalty.
Key Takeaways
- The federal government is looking for ways to increase its revenue base and encourage taxpayers to voluntarily disclose errors and omissions. Making the VDP more accessible (especially to large corporations) and providing enhanced relief may encourage taxpayers to make disclosures, where they still have to pay the tax but will have some relief on the interest and/or penalties.
- The CRA has abolished the restrictive limited program for large taxpayers (which only provided penalty relief for gross negligence penalties) and the VDP is now equally available to anyone under the general program (except it does not address non-penalty consequences faced by registered charities).
- The quantum of interest and penalty relief has generally increased, with interest relief increasing from 50% to 75% for "unprompted" VDP applications and from 0% to 25% for "prompted" VDP applications.
- The "voluntary" requirement for a successful VDP application has effectively been lowered, as now only an "audit or investigation" initiated against the applicant "in respect of the information being disclosed" will result in an application being classified as "not voluntary."
- The new changes to the VDP do not come into effect until October 1, 2025, so taxpayers may want to consider holding off on filing new VDP applications until the new more favourable program comes into effect.
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