Israel's New Voluntary Disclosure Program: What It Means For Canadian Taxpayers With Ties To Israel

Understanding the Significance of Israel's New Voluntary Disclosure Program

On August 25, 2025, the Israel Tax Authority, with the approval of the Attorney General, introduced a new Temporary Voluntary Disclosure Procedure, effective until August 31, 2026. Presented as potentially the last program of its kind, it allows individuals, corporations, business owners, and both Israeli and foreign residents who have breached tax laws to voluntarily disclose undeclared income, settle their tax obligations, and avoid criminal prosecution. Unlike past iterations, the new framework explicitly covers cryptocurrency tax and sets clear thresholds for a simplified "Green Track."

For Canadian taxpayers with investments or connections in Israel, the program raises important cross-border compliance considerations. It reflects a global shift in which tax authorities are tightening enforcement while offering one final chance to come forward voluntarily. An expert Canadian tax lawyer can provide insight into the implications of Israel's new disclosure program for Canadians with business or investment interests in Israel, particularly from the perspective of our Income Tax Act. Top of Form

Bringing Undeclared Income in Israel Into Compliance

The initiative launched by the Israel Tax Authority is not an abstract policy—it responds to everyday situations in which income remains unreported. Many taxpayers may not realize how easily this can happen. For example, an Israeli resident might inherit a bank account abroad and never report the interest it generates. A business owner could receive rental income from a property in Canada or Europe and fail to declare it. A tech entrepreneur might have invested in cryptocurrency years ago, later sold part of those holdings at a significant gain, and failed to report the taxable profit in their filings.

These are some of the potential scenarios the Israel Tax Authority aims to address. What may start as a small oversight—such as foreign bank interest, rental income from a short-term lease, or profits from digital tokens—can quickly grow into a significant compliance issue once international data exchange and digital audit tools bring such omissions to light. The voluntary disclosure procedure is therefore framed as an opportunity: a final chance to bring undeclared income into compliance before discovery results in serious consequences. Bottom of Form

Understanding Your Options: The Two Paths to Voluntary Disclosure in Israel

The new procedure is designed to make the disclosure process more accessible by offering two distinct routes: a Green Track for smaller, more straightforward disclosures and a Regular Track for more complex cases.

Applications must be submitted through an online form that will be made available on the Israel Tax Authority's website. Once filed, each application will be reviewed and assigned to the appropriate track.

Green Track

The Green Track is designed to provide relief for cases involving relatively modest amounts of undeclared capital. Instead of lengthy negotiations, taxpayers can file amended returns—or first-time returns if they do not already have an open file—allowing for quicker processing and greater certainty.

An application may qualify for the Green Track if it falls into one or more of the following categories:

• Foreign financial accounts: Assets and income held in accounts outside Israel with an aggregate balance below NIS 4 million (CAD 1,650,000 approx.) as of December 31, 2024, provided no new deposits or transfers were made during the disclosure period.
• Residential rental income: Income from properties in Israel or abroad not exceeding NIS 250,000 per year (CAD 100,000 approx.).
• Digital assets: Income from cryptocurrency and other digital assets not exceeding NIS 500,000 (CAD 200,000 approx.) for the entire disclosure period, with a combined fair market value of all holdings not exceeding NIS 1.5 million (CAD 600,000 approx.) as of December 31, 2024.
• Combination: Any mix of the above categories, as long as all thresholds are respected.

By establishing these clear eligibility criteria, the Israel Tax Authority seeks to treat taxpayers with smaller exposures—such as modest overseas accounts, limited rental income, or crypto holdings within the limits—fairly and encourage them to use the Green Track and bring their affairs into compliance quickly.

Regular Track

The regular track applies to disclosures that do not qualify for the Green Track or involve more complex circumstances. This may include larger financial holdings, substantial rental income, significant cryptocurrency gains, multiple foreign accounts, or corporate structures requiring detailed review. In these situations, taxpayers resolve their liability through a formal assessment agreement with the relevant tax office.

Conditions for Eligibility

Not every taxpayer can take advantage of the voluntary disclosure procedure. To qualify, the application must be truthful, complete, and made in good faith. Those who have previously been convicted of a tax offence, paid a fine for such an offence, or already benefited from a voluntary disclosure in the past are not eligible. In addition, the program is closed to anyone already under investigation or audit by the Israel Tax Authority or another enforcement body. This restriction also extends to spouses, controlled companies, and business partners.

Conditional Immunity from Criminal Proceedings

Suppose a voluntary disclosure request is not approved. In that case, the Israel Tax Authority will generally not use the information provided in civil or criminal proceedings, except where it later obtains the information independently, determines that the disclosure was incomplete or untruthful, or where the applicant fails to pay the assessed tax. In such cases, the information may be used as evidence; therefore, professional legal advice is strongly recommended before making a disclosure.

Canada's Voluntary Disclosures Program: A Useful Comparison

Canada has its own long-standing Voluntary Disclosures Program (VDP), administered by the Canada Revenue Agency (CRA). Similar to the Israeli procedure, the VDP is designed to encourage taxpayers to come forward and correct past non-compliance before enforcement action begins. Taxpayers who make a valid disclosure must pay the taxes owing plus interest, but can generally avoid penalties and prosecution.

Under the Canadian program, a disclosure must meet four conditions: it must be voluntary (filed before the CRA initiates an audit or investigation), complete (covering all years and accounts in question), involve a penalty risk, and be at least one year past due, unless it corrects a previously filed return. Relief is discretionary and can include cancellation of penalties and partial interest relief for years older than the most recent three.

The CRA also offers two ways to apply: a "named" disclosure, where the taxpayer's identity is revealed upfront, and a "no-name" disclosure that allows preliminary discussions before deciding to proceed. Once accepted, the disclosure generally protects against prosecution and penalties, but compliance must continue going forward—repeat disclosures are only permitted in exceptional circumstances.

For Canadians evaluating Israel's new temporary program, the contrast is notable. Israel has introduced strict financial thresholds and a defined one-year window, whereas Canada's VDP is permanent but applies only if the disclosure is made before CRA starts enforcement. Both systems reflect the same philosophy: rewarding taxpayers who act in good faith to correct past non-compliance.

How Israel's Voluntary Disclosure Program Applies to Canadians

The voluntary disclosure program applies broadly to Israeli residents as well as foreign residents who have income or assets that were not correctly reported to the Israel Tax Authority. The initiative is structured to capture a wide range of cases, including offshore financial accounts, residential rental income, and digital assets such as cryptocurrency.

For Canadians, the relevance is clear. Taxpayers with business or investment ties in Israel—whether through financial accounts, property ownership, or digital holdings—should carefully consider whether they fall within the scope of this program. From a Canadian perspective, non-compliance carries a dual risk: exposure under Israeli tax law and potential reassessment under Canada's Income Tax Act if the same income was not declared domestically.

Given the complexity of the process and the potential exposure to criminal proceedings, professional guidance and representation are not just advised, but crucial for your security and peace of mind.

Pro Tax Tips – Navigating Israel's Voluntary Disclosure Program

• Do Not Underestimate Small Omissions: Even modest interest from a foreign account, rental income from a family property, or unreported crypto gains can trigger penalties if discovered. Addressing them through disclosure may prevent harsher consequences.
• Coordinate with Canadian Reporting Obligations: Income unreported in Israel may also have gone unreported in Canada. Coordinating disclosure with your Canadian filings ensures compliance in both jurisdictions. An expert Canadian tax lawyer can align the two processes.
• Prepare Documentation in Advance: Collect bank statements, property records, and transaction histories before filing. Organized documentation helps demonstrate good faith and makes the process smoother.

FAQ - How Israel's Voluntary Disclosure Program Affects Canadians

Why should Canadians with ties to Israel be concerned?

Because non-compliance creates exposure in both jurisdictions, undeclared income can trigger liability under Israeli law and may also lead to reassessment under Canada's Income Tax Act. A top Canadian tax lawyer can help navigate the cross-border implications and ensure the disclosure is coordinated correctly in both Canadian and Israeli law.

Does the program cover cryptocurrency?

Yes. For the first time, digital assets are explicitly included. Income from cryptocurrency can be disclosed, provided it falls within the program's limits or, if larger, through the regular track.

Is there a deadline to apply?

Yes. The voluntary disclosure program is only available until August 31, 2026. After that date, taxpayers who have not disclosed may face full enforcement measures without the protection of immunity.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.