Tax Insights: Changes to the Canada Revenue Agency’s Voluntary Disclosures Program for GST/HST and other taxes

Issue 2025-36

In brief

What happened? 

On September 10, 2025, the Canada Revenue Agency (CRA) announced changes to its Voluntary Disclosures Program (VDP) that will apply to VDP applications submitted after September 30, 2025.  The changes improve the program by:

• providing more clarity on when a voluntary disclosure can be made
• enhancing the benefits that can be obtained from making a disclosure by increasing the amount of interest relief for certain types of disclosures

This Tax Insights discusses the new VDP, as explained in CRA’s GST/HST Memorandum 16-5-1,¹ with respect to voluntary disclosures that are initiated for GST/HST and excise tax matters, excise duties imposed under the Excise Act, luxury taxes levied under the Select Luxury Items Tax Act and various other taxes (other than income tax²) that are administered by the CRA.

Why is it relevant?

The changes to the VDP are significant and are expected to result in more voluntary disclosures applications being submitted to the CRA. If an application is deemed eligible for relief under the VDP, the CRA will not levy any penalties (in most cases) on the disclosure and the amount of interest that is otherwise payable may be relieved by 75% for an “unprompted application,” 25% for a “prompted application” and 100% for a “wash transaction.”

Actions to consider

Taxpayers that have failed to comply with their obligations and have a resulting tax liability are strongly encouraged to rectify their situation by initiating a voluntary disclosure. Although the resulting tax liability must be paid, by initiating a disclosure, the taxpayer will not be treated as harshly as if the non-compliance is detected on audit.

In detail

Background

Taxation statutes in Canada are premised on the principle of voluntary self-compliance, where taxpayers are expected to accurately account for and report their tax liabilities. To ensure that taxpayers are satisfying their tax obligations, taxation authorities like the CRA have broad audit and enforcement powers and, when non‑compliance is detected, the taxpayer is generally required to pay its tax liability plus interest and penalties, which can be significant in certain circumstances.

When a taxpayer believes that they have an undisclosed tax liability, initiating a voluntary disclosure is often the best path forward to becoming compliant as, in most cases, the tax authority may reduce the amount of penalties and interest that would otherwise be payable by the taxpayer.

Key changes to the GST/HST Voluntary Disclosures Program

Key changes to the VDP for GST/HST include:

• no longer classifying disclosures as Category 1 (GST/HST wash transactions), Category 2 (General Program) and Category 3 (Limited Program) which, in the past, resulted in some taxpayers (e.g. large businesses) being reluctant to initiate a voluntary disclosure, because the CRA provided no interest relief for a Category 3 disclosure
• classifying disclosures into three categories (each with some interest and penalty relief), based on whether the disclosure was “unprompted” or “prompted” by a CRA communication, or involved in a “wash transaction,” as follows:
  • Unprompted applications – normally eligible for general relief (75% relief of the applicable interest and 100% relief of the applicable penalties)
  • Prompted applications – normally eligible for partial relief (25% relief of the applicable interest and up to 100% relief of the applicable penalties)
  • Wash transactions within a VDP application – eligible for 100% relief of the applicable interest and penalties, if the transaction is eligible for a reduction of penalty and interest under the policy set out in GST/HST Memorandum 16-3-1³
• clarifying the number of years that should be included in a disclosure – the CRA will require supporting documentation that is “needed to correct the non‑compliance for the most recent four (4) years” and documentation beyond the four years “may be requested by the CRA at its discretion;” previously, the four year period applied only to disclosures under  Categories 1 and 2, while Category 3 disclosures were for “all relevant years”
•  allowing a taxpayer to make a second voluntary disclosure, provided it relates to a “different matter than a previous application” or involved a circumstance beyond their control; previously, a taxpayer was “generally entitled to obtain the benefits of the VDP only once,” which resulted in most taxpayers not wanting to use the VDP unless the amounts involved were significant
• clarifying (and potentially relaxing) what is considered to be an “enforcement action,” which would preclude someone from being eligible for the VDP, as follows:
  • the CRA will no longer consider an “educational letter or notice that offers general guidance and filing information related to a particular topic” to be an enforcement action and will instead allow the resulting disclosure application to be an “unprompted disclosure” 
  • the CRA will consider a disclosure to be a “prompted disclosure” when an application is made after:
    • the person received a verbal or written CRA communication about an identified compliance issue related to the disclosure, which may include letters or notices (excluding education letters) to the person with one or more of the following:
      (i) an identification of a specific error or omission found on the person's account
      (ii) a deadline to correct an error or omission, where there is an expectation for the person to file or comply
    • the CRA has already received information from third party sources relating to the potential involvement of a specific person (or of a related person) in tax non‑compliance

The takeaway

The changes that the CRA has made to its VDP should increase the number of disclosures made to the program, because the CRA has:

• enhanced the amount of interest relief that is available, particularly for large businesses
• removed the condition that the program may only be used once
• provided more clarity and comfort on when a disclosure can be made

<sup>1. GST/HST Memorandum 16-5-1, Voluntary Disclosures Program (Applications Received On or After October 1, 2025) (September 2025)
2. CRA’s Information Circular IC00-1R7, Voluntary Disclosures Program (September 10, 2025) provides information on the new VDP as it relates to income tax disclosures, and will be discussed in a separate Tax Insights, which will be available at www.pwc.com/ca/taxinsights.
3. GST/HST Memorandum 16-3-1, Reduction of Penalty and Interest in Wash Transaction Situations (April 2010)</sup>