Tax Insights Published October 1, 2025 VOL 02 NO 03
ORIGINAL ARTICLE
| By: | Dorathy Yau – BCom, MTax Vishal Raithatha – CPA, CA, MMPA, B.A.Sc. Computer & Electrical Engineering |
Planning under consideration
The Canada Revenue Agency (CRA) announced significant changes to its Voluntary Disclosure Program (VDP) on September 10, 2025. The key changes, effective October 1, 2025, include broadened program eligibility, new categorization of applications, and enhanced relief from interest and penalties. This is welcome news given that the restrictive nature of the predecessor VDP discouraged many taxpayers from seeking relief.
The changes were included in the CRA’s newly released Information Circular IC00-1R7 VDP and GST/HST Memorandum 16-5-1 VDP which apply to VDP applications received by the CRA on or after October 1, 2025. Any VDP applications submitted prior to October 1, 2025 will be considered under the predecessor VDP.
This edition of Tax Insights highlights the key differences between the predecessor and new VDP which is important for taxpayers to understand when planning how to address past non-compliance
Analysis
Broadened program eligibility for what is considered “voluntary”
Under the old VDP taxpayers would be disqualified from the program if either of the following applied:
- A taxpayer was aware of an enforcement action against them with respect to the information being disclosed of to the CRA;
- A taxpayer had an enforcement action initiated either against them, or against a related or associated person, or a third party in connection with the information being disclosed to the CRA; or
- The CRA has already received information regarding the taxpayer’s potential involvement in non-compliance.
Enforcement action under the old VDP was not limited to CRA audits and audits by other law enforcement agencies or regulated authorities but also included requests issued by the CRA or direct contact by a CRA employee.
However, under the new VDP, a taxpayer would only be ineligible for the VDP if there is an audit or investigation initiated against the taxpayer or a related taxpayer with respect to the information being disclosed. Audits and investigation are not limited to those conducted by the CRA but includes ones from law enforcement agencies, the securities commission or other federally or provincially regulated authorities.
New categorizations of applications along with enhanced relief from interest and penalties
| Old | New |
| · General:
o Discloses non-compliance with no element of intentional conduct.
o If accepted, would receive: – 50% relief of the applicable interest for tax years that are more than 3 years old, going back as far as 10 calendar years before the calendar year in which the VDP application is filed; – 100% relief on the applicable penalties within the 10 years before the calendar year before the VDP application is filed; – Relief from criminal prosecution.
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· Unprompted:
o There has been no verbal or written communication from the CRA about the compliance issue; or o There has been an education letter issued or notice that offers general guidance and filing information for a particular filing topic.
o If accepted, would receive: – 75% relief of the applicable interest and – 100% relief on the applicable penalties.
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| · Limited:
o Discloses non-compliance where there is an element of intentional conduct on the part of the taxpayer or a related party.
o If accepted, would receive: – No interest relief; – No relief from regular penalties; – Relief from criminal prosecution; and – Relief from gross negligence penalties. |
· Prompted:
o There has been verbal or written communication about the identified compliance issue which may include letters or notices (excluding those mentioned in the “Unprompted” category) to the taxpayer with one or more of the following: – Identification of a specific error or omission found on the taxpayer’s account; or – A deadline to correct an error or omission with the expectation that the taxpayer will file or comply. o The CRA is already aware of the taxpayer’s potential involvement in non-compliance from third party sources at the time of the VDP application.
o If accepted, would receive: – 25% relief of the applicable interest; and – Up to 100% relief on the applicable penalties. |
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· Both: o Under both categories if relief is provided there will also be protection from prosecution and gross negligence penalties. |
Other key changes to note:
- Under the new program the completed Form RC199, Voluntary Disclosures Program Application, must be included with the application.
- Supporting documents must be included with the application for the last:
- 6 years which include errors or omission; and
- 10 years, if the errors or omissions relate to assets or income that are located outside Canada.
If a tax year in the above time frames do not include any errors or omissions, no supporting documentation needs to be included with the VDP application for that tax year.
- Under the new program an application can be made if it involves either the application of interest or penalties or both, whereas under the predecessor program the potential application of penalty is necessary condition for the application to be eligible.
- The CRA has removed the wording that VDP applications can only be made once under the new VDP but clarify that taxpayers must remain compliant after being granted relief under the VDP. The CRA also maintains that a subsequent application may be considered if the circumstances resulting in the non-compliance are beyond the taxpayer’s control or is related to a different matter than a previous application made.
GST/HST Memorandum 16-5-1
The new GST/HST Memorandum 16-5-1 generally applies to Voluntary Disclosures made relating to GST/HST or excise taxes under the Excise Tax Act. It also has expanded to disclosures made in relation to various other acts which will not be discussed here (i.e. Digital Services Tax Act, Underused Housing Tax Act).
In general, the new VDP program for GST/HST adopts the same expanded program eligibility and new “unprompted” and “prompted categorizations of VDP applications mentioned above for disclosures made in relation to the Income Tax Act. It also now specifies that there is 100% relief from applicable penalties and interest for the third category (which remains from the predecessor VDP) relating to wash transactions if it is eligible for the reduced penalty and interest under the guidelines previously published in GST/HST Memorandum 16-3-1.
The VDP application for GST/HST must include a completed Form RC199 and supporting documents for the last 4 years which contain errors or omissions.
Final remarks
In our view, the new VDP will encourage more taxpayers to clean up any past non-compliance. While the CRA has relaxed its requirements under the VDP and updated the language in its information circular and memorandum to make it easier for taxpayers to understand what is required to make a VDP application each person’s tax situation is unique. If you have any questions about your situation, you should consult your tax advisor to help navigate any uncertainties to maximize relief where possible.