Favourable changes to the Voluntary Disclosures Program for non-compliant taxpayers

The Canada Revenue Agency (the “CRA”) administers the Voluntary Disclosures Program (“VDP”) to grant penalty and/or interest relief to taxpayers who voluntarily disclose errors or omissions in their past tax filings and pay the taxes owing, provided they meet the eligibility requirements of the program. These requirements are set out in the CRA’s Information Circular IC00-1R7 (for income tax) and GST/HST Memorandum 16-5-1 (for GST/HST and certain other taxes).

Effective October 1, 2025, the CRA changed the requirements of the VDP, making the program more favourable to taxpayers. The key changes to the program are outlined below.

What’s new

(i)   New distinction between prompted and unprompted applications

Previously, the VDP was split between the general program and the limited program. Generally, this split provided for lesser relief under the limited program where the past error or omission involved an element of intentional conduct. Under the new rules, this distinction has been dropped in favour of a distinction between “unprompted” and “prompted” applications.

An unprompted application is one that is filed without the taxpayer having received any communication (verbal or written) from the CRA regarding the identified compliance issue. An education letter or notice offering general guidance on filing does not constitute communication for these purposes.

A prompted application is one that is filed after a verbal or written communication from the CRA that identifies the particular compliance issue that is the subject of the application, or after the CRA has already received information from third-party sources regarding the potential involvement of the taxpayer in non-compliance.

(ii)   Expanded eligibility

The new rules expand eligibility for the VDP. Most importantly, the new rules regarding prompted applications means that more applications will be eligible, because under past guidance a prompted application would not be considered “voluntary” and, therefore, would not be eligible for relief.

Moreover, under the old rules, one of the requirements for eligibility was the application or potential application of a penalty. This requirement has been eased under the new rules, so an application can be eligible for relief even where no penalty applies.

Finally, under the new rules, the CRA references obligations under additional tax statutes as being eligible for relief. Previously, VDP applications could only be filed for income tax, excise duties, GST/HST, charges under the Air Travellers Security Charge Act, and charges under the Softwood Lumber Products Export Charge Act, 2006.

The program now also references amounts charged under Part I of the Greenhouse Gas Pollution Pricing Act, the Select Luxury Items Tax Act, the Underused Housing Tax Act, the Digital Services Tax Act, and the Global Minimum Tax Act.

(iii)   Increased penalty and interest relief

The interest and penalty relief available in respect of eligible applications has also increased. Previously, interest relief under the general program was limited to 50% of the applicable interest for taxation years prior to the three most recent years of returns required to be filed. Applications accepted under the limited program were not eligible for any interest relief. Under the new rules, interest relief is set at 75% for unprompted applications and 25% for prompted applications. There is no longer a limitation with respect to the three most recent years of returns required to be filed.

As before, eligible applications receive full relief from gross-negligence penalties and criminal prosecution. Like the old general program, unprompted applications also receive relief from other penalties. Unlike the old, limited program, which provided for no relief from other penalties, prompted applications may receive relief from other penalties (described as “up to 100%” relief).

Notably, because the limited program has been eliminated, the general rule that corporations with gross revenue in excess of $250 million in at least two of their last five taxation years would be considered under the limited program has been removed.

It is important to note that the 10-year limitation period for relief remains unchanged. Generally, relief can only be granted for penalties imposed or interest accrued in the 10 calendar years prior to the application.

(iv)   Clearer documentation requirements

For a VDP application to be valid, it must meet all eligibility requirements. Notably, the new rules now specify the number of years for which supporting documentation must be provided with the application to correct the non-compliance, as follows:

• for foreign-sourced income or assets, the most recent ten years;
• for Canadian-sourced income or assets, the most recent six years; and
• for information about GST/HST, the most recent four years.

However, after receiving the application the CRA may ask for additional documentation outside of these timeframes and such documentation must be provided. In addition, the CRA can ask for any further documents or records relevant to the disclosure. Where documents do not exist, the applicant will be expected to make all reasonable efforts to provide estimates.

(v)   Ability to request a payment arrangement

Previously, it was unclear in what circumstances a taxpayer could obtain relief under the VDP without paying the full amount of taxes owing up front. The program now gives the taxpayer the option of either providing payment up front or requesting a payment arrangement in the application.

Key takeaways

The changes expand eligibility and may make the program more attractive to taxpayers who wish to bring their affairs into good standing with the CRA by correcting past non-compliance. That said, there remain ambiguities in IC00-1R7 and GST/HST Memorandum 16-5-1. The risks associated with making a VDP application must be considered in every case. Since the changes have only been in effect since October 1, 2025, there is limited information on how the new changes are being interpreted. Taxpayers considering a VDP application should consider obtaining legal advice before proceeding.