Changes to the Voluntary Disclosures Program (VDP) Effective October 1, 2025: What Taxpayers Need to Know

The Canada Revenue Agency (CRA) is implementing significant changes to the Voluntary Disclosures Program (VDP) effective October 1, 2025. The VDP is designed to encourage taxpayers to come forward and correct past errors or omissions in their tax filings, offering relief from penalties and, in some cases, interest. The new rules aim to make the program more accessible, transparent, and fair, while maintaining the integrity of the tax system.

Previously, voluntary disclosures were more readily disqualified for lack of voluntariness. The CRA considered disclosures not to be voluntary if an applicant was aware of an enforcement action set to be conducted, or if an enforcement action had been initiated against the taxpayer. Enforcement actions included not only audits and investigations, but also examinations, CRA requests or demands about unfiled returns, requests, or demands regarding “other tax affairs”, and direct contact from a CRA employee about non-compliance. Under the new rules, such communications (other than those related to audits and investigations) no longer automatically disqualify a taxpayer from making a voluntary disclosure. Instead, recipients of such communications can now be streamed into the new “prompted” application category.

Below is a summary of the key changes, with examples to illustrate how the new rules will apply in practice.

1. Two-Tiered Relief Structure
   

What’s New:

The VDP now offers two levels of relief, depending on whether the disclosure is “unprompted” (general relief) or “prompted” (partial relief):

• Unprompted (General) Relief:

  • Application is made before any compliance communication from the CRA (other than an educational letter).

  • Relief: 100% penalty relief and 75% interest relief.

• Prompted (Partial) Relief:

  • Application is made after the taxpayer receives a compliance communication from the CRA (such as a letter identifying a specific issue or requesting corrective action), but before an audit or investigation is initiated.

  • Relief: Up to 100% penalty relief and 25% interest relief.

Example:

• Unprompted: Jane realizes she failed to report $20,000 of investment income from 2021. She has not received any communication from the CRA about this issue. She applies to the VDP and, if accepted, will not be charged penalties and will receive a 75% reduction in interest on the tax owing.

• Prompted: John receives a letter from the CRA advising him that his 2022 return may have omitted some self-employment income and requesting clarification. He applies to the VDP after receiving this letter but before an audit begins. If accepted, he will not be charged penalties and will receive a 25% reduction in interest on the tax owing.

2. Expanded Eligibility
   

What’s New:

• Taxpayers who receive an educational letter from the CRA (which provides general guidance and does not identify a specific compliance issue) are now eligible for the VDP.

• Taxpayers under audit or investigation, or those who have been egregiously or intentionally non-compliant, remain ineligible.

Example:

• Eligible: Maria receives an educational letter from the CRA about common errors in reporting rental income. She realizes she made a mistake on her 2020 return and applies to the VDP. She is eligible for relief.

• Ineligible: Alex is already under audit for unreported offshore income. He cannot use the VDP to address issues related to the audit.

3. Documentation Requirements

What’s New:

Applications involving non-compliance over multiple years must include:

• The most recent 6 years of Canadian-sourced income or assets.

• The most recent 10 years of foreign-sourced income or assets.

• For GST/HST-related disclosures, the most recent 4 years of information must be included.

  
  

Example:

• Canadian Income: A taxpayer discloses unreported business income from 2018 to 2023. They must provide supporting documentation for all 6 years.

• Foreign Assets: A taxpayer failed to report a foreign bank account from 2015 to 2024. They must provide documentation for all 10 years.

4. Payment or Payment Arrangement Requirement

What’s New:

• Applications must include payment of the estimated tax owing or a request for a payment arrangement

• Approval of payment arrangements is at the CRA’s discretion.

  
  

Example:

• Payment Included: Sarah calculates she owes $8,000 in back taxes and includes a cheque with her VDP application.

• Payment Arrangement Requested: Mark cannot pay the full $15,000 owing. He submits a request for a payment arrangement with his application. The CRA will review and decide whether to accept the arrangement.

5. Exclusions and Limitations

What’s New:

• The VDP does not apply to:

  • Applications seeking only to increase credits or refunds without a corresponding increase in tax liability.

  • Applications to make or change elections under the Income Tax Act.

  • Applications for relief from penalties or interest already assessed.

  • Situations involving insolvency events for the years in question.

    
    

Example:

• Excluded: A taxpayer wants to amend a return to claim additional RRSP contributions, resulting in a refund, but no additional tax owing. This is not eligible for the VDP.

6. Application Procedures and Process

What’s New:

• Applications must be voluntary, complete, and relate to a period at least one year past the filing due date.

• All supporting documents must be included, and applicants must respond promptly to CRA requests for additional information.

• Applications can be submitted electronically (via My Account, My Business Account, or Represent a Client) or by mail/fax.

• Taxpayers can request an anonymous pre-disclosure discussion with the CRA to better understand the process and their risks.

  
  

Example:

• Application Process: Lisa discovers she failed to report capital gains in 2022. She gathers all relevant documents, completes the VDP application, and submits it through My Account. She also requests a pre-disclosure discussion to clarify her situation before formally applying.

7. Review, Decision, and Redress

What’s New:

• The CRA will review each application on its merits and notify the taxpayer in writing of its decision.

• If the taxpayer believes the CRA’s discretion was not exercised fairly, they may request a second administrative review.

• Judicial review by the Federal Court is available if the taxpayer is dissatisfied after the second review.

• There is no right of objection to a VDP decision, but taxpayers may request interest and penalty relief under the taxpayer relief provisions if not granted under the VDP.

Summary Table: Key Features of the New VDP (Effective October 1, 2025)

Feature	Unprompted (General) Relief	Prompted (Partial) Relief
Penalty Relief	100%	Penalty Relief 100% Up to 100%
Interest Relief	75%	25%
Eligibility	No prior compliance contact	After compliance contact
Documentation	6 years (Canada), 10 years (foreign), 4 years (GST/HST)
Payment	Payment Required or payment arrangement
Exclusions	See above	See above
Application	Electronic or paper	Electronic or paper

Conclusion

The new VDP rules effective October 1, 2025, provide clearer guidance, expanded eligibility, and a more streamlined process for taxpayers seeking to correct past tax errors. The two-tiered relief structure rewards those who come forward before the CRA initiates compliance action, while still offering partial relief to those who act after being contacted but before an audit or investigation begins. Taxpayers are encouraged to review their tax affairs and, if necessary, take advantage of the VDP to avoid penalties and reduce interest, while ensuring compliance with Canadian tax law.

For more information, visit the CRA’s Voluntary Disclosures Program page or consult the latest Information Circular IC00-1R7 and GST/HST Memorandum 16-5-1 for full details.

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