The CRA recently updated the policy for its voluntary disclosure program (VDP) effective for voluntary disclosures (VDs) made after September, 2025. This article summarizes the new policy, mainly as it relates to eligibility.
For more information on the VDP process, please see IC00-1R7 (Voluntary Disclosures Program) (the Circular). Please also see the CRA website on VDs. The Circular and the website contain valuable information about the program. Please read these materials to familiarize yourself with how VDs work and what they can and cannot accomplish.
What follows is not meant to be a comprehensive review of VDs. Rather, it highlights some important information of which you should be aware before making a disclosure.
What Is A Voluntary Disclosure?
To quote from the Circular:
- The Voluntary Disclosures Program (VDP) is an opportunity for taxpayers to inform the Canada Revenue Agency (CRA) about and correct errors or omissions in their tax obligations. If relief is provided by the CRA under the VDP, a taxpayer may receive some penalty and interest relief, and will not be referred for criminal prosecution. Any taxes owing will still have to be paid by the taxpayer in full.
- The VDP aims to provide relief that is fair and is not intended to reward non-compliance. In other words, a taxpayer that follows the rules should not be worse off economically than a taxpayer who uses the VDP. The VDP is not intended to serve as a vehicle for taxpayers to intentionally avoid their legal obligations under legislation administered by the CRA.
Conditions For A Valid Disclosure
The Circular specifies the following conditions for a valid disclosure:
- The application must be voluntary.
- The application must relate to a tax year where the filing deadline expired more than a year ago.
- The application must relate to an error where interest or penalties might be levied for the error.
- The taxpayer must provide all relevant information for all required years.
- The taxpayer must “respond … comprehensively and promptly to all CRA requests for information”.
- The taxpayer must pay the estimated amount of the tax owing or make a request for a payment arrangement.
What is voluntary?
The CRA will not accept a disclosure if it is prompted by an audit or investigation. “Investigation” does not mean only CRA a investigation.
The CRA will accept disclosures for “unprompted applications” and “prompted applications” but provide different levels of relief for each of these types.
An unprompted application relates to a compliance issue where the CRA has not communicated about it (verbally or in writing) with the taxpayer. The CRA accepts that “education letters” (communications that provide taxpayers with general information about an issue) is not a “prompt” for the for the foregoing purpose.
A prompted application relates to a compliance issue that the CRA has communicated to the taxpayer or for which the CRA has received information from a third-party.
Levels of relief
The CRA will provide the following levels relief for eligible VDs:
| Unprompted | Prompted | |
|---|---|---|
| Interest | 75% | 25% |
| Penalties | 100% | 100% |
The CRA will also refrain from imposing gross negligence penalties or referring a matter for criminal prosecution for eligible VDs.
The foregoing is subject to the ten-year limitation period for interest and penalties provided by subsection 220(2.1) of the Income Tax Act (Canada). This means the CRA cannot provide relief for late-filing penalties or interest beyond the ten most recent calendar years.
LPC Comments
Making a VD entails certain risks and costs.
- No one can guarantee that the CRA will consider a disclosure to be voluntary or that it will be considered “unprompted”. For example, the CRA, unbeknownst to you, might have information about you from a third-party that, in its view, negates your ability to make an unprompted disclosure.
- The taxpayer must disclose all errors or omissions in all prior returns. If the VD is incomplete in any way, then the CRA could take the position that the taxpayer is liable for penalties or prosecution in respect of all errors or omissions including those that have been disclosed as part of a VD. You might believe that you have disclosed all errors or omissions that need to be dealt with through a disclosure, but the CRA might become aware of other errors or omissions of which you were unaware that, in its view, invalidate your disclosure.
- The CRA takes the view that a taxpayer is generally entitled to make only one VD in his or her lifetime.
- The CRA takes the position that legal fees or accounting incurred to prepare a voluntary disclosure application are not deductible under the Income Tax Act (Canada).
Created: 2025-10-21 Tue 16:03
