Canexi Accounting & Tax Solutions Blog

What Is the Voluntary Disclosures Program (VDP)?

The VDP allows taxpayers to proactively correct past non-compliance—such as unreported income, incorrect deductions, or unfiled tax returns—in exchange for penalty relief, partial interest relief, and protection from criminal prosecution. The updates effective October 2025 modernizes the program, offering a clearer pathway for both individuals and corporations seeking to become compliant.

Key CRA Changes Effective October 1, 2025

1. Two-Tiered Relief: Unprompted vs. Prompted Applications

The CRA now distinguishes applications as “unprompted” or “prompted”, determining the type of relief available.

Unprompted (General Relief):

• Applies when the taxpayer has not been contacted by the CRA regarding the issue.
• Eligible for 100% penalty relief and 75% interest relief for the 10 most recent taxation years.
• This is an improvement over the old framework, which offered only 50% interest relief for years four to ten and none for the three most recent years.

Prompted (Partial Relief):

• Applies when the CRA has already contacted the taxpayer or received information from third parties about non-compliance.
• Eligible for up to 100% penalty relief, but only 25% interest relief for the 10 most recent taxation years.
• This is a major policy shift—previously, prompted applications were disqualified as non-voluntary.

2. Expanded Eligibility Criteria

Under the revised rules, the CRA may consider a VDP application even if prior communication (such as an "education letter") has been issued. Previously, any CRA correspondence often disqualified eligibility.

Taxpayers can now qualify for relief in the following cases:

• The CRA has issued general educational notices or reminders rather than specific audit notices.
• Errors resulted only in interest being applied, not a penalty.
• A taxpayer files a repeat disclosure involving new issues or circumstances beyond their control.

However, taxpayers under audit, criminal investigation, or enforcement action remain ineligible.

3. Updated Application Requirements

All VDP applications must now be submitted electronically through Form RC199 with complete supporting documentation at the time of submission:

• Domestic income or asset disclosures: Past 6 years.
• Foreign income or offshore asset disclosures: Past 10 years.
• GST/HST disclosures: Past 4 years.

However, any tax years or reporting periods within the above timeframes that have no errors or omissions do not need to be included with the application. The CRA may ask for more documents for tax years or reporting periods beyond the above timeframes.

This documentation-heavy step replaces the old system, where applicants could file an initial letter and provide details later. Taxpayers are advised to prepare their filings early—delays increase the risk of CRA identifying the issue before submission, disqualifying the taxpayer from relief.

4. Broader Scope of Tax Programs Covered

The modernized Voluntary Disclosures Program now applies beyond income tax and GST/HST. As of October 2025, it also explicitly covers luxury tax, underused housing tax (UHT), digital services tax (DST), fuel charge, plus Global Minimum Tax, Air Travellers Security Charge, and Softwood Lumber Products Export Charge—among others like excise duties.

This expansion aligns the program with Canada’s growing tax landscape and digital economy.

Determining Whether Your Application Is “Unprompted” or “Prompted”

A key factor in determining your relief type is whether CRA communication about your non-compliance has already occurred.

Unprompted Applications:

• You have not been contacted about the specific issue.
• Any CRA communication was general (e.g., educational campaigns).
• CRA has not received third-party information identifying your error.

Prompted Applications:

• CRA has sent a letter citing a specific unreported item, or requested you correct a return.
• A third party (e.g., financial institution, partner) has provided the CRA with relevant information.
• You have acknowledged non-compliance following initial CRA contact.

Tip: If you’re unsure which category applies, consult your tax advisor or submit an anonymous pre-disclosure inquiry to CRA. This preserves eligibility for unprompted relief.

Why This Change Matters to Canadian Businesses

For small and mid-sized enterprises, particularly those with cross-border operations or unreported foreign income, these updates create more flexibility. Even if CRA has already reached out, a prompted disclosure still provides meaningful penalty and interest relief—a significant departure from the previous “all-or-nothing” system.

Final Thoughts

The 2025 CRA VDP update is one of the most taxpayer-friendly revisions in recent years. Whether your case qualifies as unprompted or prompted, the program now provides more opportunities to avoid the full cost of penalties and maintain good standing.

If you’re considering a disclosure, act promptly—delays could trigger a CRA review, making relief unavailable.

Need guidance? Our team can help you assess eligibility, prepare supporting documentation, and submit a complete Form RC199 to maximize your relief under the new CRA Voluntary Disclosures Program.

*General Information Disclaimer (as of 2025-12-26)* 

This blog provides educational insights on Canadian accounting, tax, and international SME topics based on current public CRA guidelines and standards. Laws change frequently, so content may become outdated—verify with official sources. Canexi Accounting & Tax Solutions provides general insights; this is not professional advice. As a non-public practice, we focus on advisory services—contact us for tailored guidance. We offer no guarantees or liability for decisions based on this material. Consult a qualified CPA for personalized needs.

Further Reading:

CRA Canada, IC00-1R7 Voluntary Disclosures Program