Tax Insights: The Canada Revenue Agency revises its Voluntary Disclosures Program effective October 1, 2025

Issue 2025-37

In brief

What happened? 

On September 10, 2025, the Canada Revenue Agency (CRA) released revised Information Circular ICOO‑1R7, Voluntary Disclosures Program (VDP), which simplifies and allows greater access to the VDP for submissions made after September 30, 2025. The changes improve the program by:

• increasing eligibility
• enhancing the benefit relief that may be obtained by increasing the amount of interest relief for certain types of disclosures

The previous VDP Information Circular, ICOO‑1R6, will continue to apply to submissions made to the program before October 1, 2025.

This Tax Insights discusses the updated VDP, as explained in Information Circular ICOO‑1R7, with respect to voluntary disclosures that are initiated for income tax matters.¹

Why is it relevant?

The changes to the VDP will increase access to, and benefits from, the program, which will likely result in more voluntary disclosures applications being submitted to the CRA. If an application is deemed eligible for relief under the VDP, a taxpayer may receive three main benefits:

• penalty relief
• interest relief
• no referral for criminal prosecution for the issue(s) disclosed

The amount and type of relief will vary, depending on the circumstances of the disclosure.

Actions to consider

Taxpayers that have failed to comply with their obligations and have a resulting tax liability or penalty are encouraged to rectify their situation by initiating a voluntary disclosure. Although the resulting tax liability must be paid – if an application to the program is accepted – the taxpayer will receive relief on related penalties and interest that would otherwise be assessed if the non‑compliance were to be detected during an audit.

Taxpayers that may not have previously qualified, particularly large corporations, or did not anticipate receiving adequate benefits before these changes to the VDP, may want to reconsider submitting an application under the updated VDP.

In detail

Background

Taxation statutes in Canada are premised on the principle of self-assessment, where taxpayers are expected to accurately account for and report their tax liabilities. To ensure that taxpayers are properly satisfying their tax obligations, the legislation often imposes penalties and interest, which may be significant, if taxpayers do not comply appropriately.

The legislation also provides the Minister of National Revenue with the authority to waive interest and penalties in certain circumstances, including when a taxpayer voluntarily discloses that they have not fully complied with the legislation in assessing their tax obligations. Information Circular ICOO‑1R7 describes the manner in which the CRA will administer voluntary disclosures applications made after September 30, 2025.

Key changes to the income tax Voluntary Disclosures Program

Key changes to the VDP for income tax are discussed below.

Simplified application form

A new simplified application form RC199, Voluntary Disclosures Program (VDP) Application, will be available October 1, 2025.

Eligibility relaxed for certain CRA “enforcement actions”

The CRA will allow certain “enforcement actions” that have been initiated by the CRA to be eligible for full or partial benefits under the VDP. Previously, when the CRA had initiated any “enforcement action” relating to a taxpayer’s potential non-compliance action, the taxpayer would not have been eligible for the VDP.

Under the updated VDP, eligibility will be less restrictive and considered under two categories:

•  Unprompted applications – these are generally applications made:
  • when there has been no communication (verbal or written) with the CRA about an identified non-compliance issue
  •  following an education letter or notice from the CRA that offers general guidance and filing information related to a particular issue
• Prompted applications – these are generally applications made:
  • following a verbal or written communication with the CRA about an identified non-compliance issue, including letters or notices (but excluding education letters), with one or more of the following:
    • an identification of a specific error or omission found on the taxpayer’s account
    • a deadline to correct an error or omission, where there is an expectation for the taxpayer to file or comply
  • after the CRA has already received information from a third-party source relating to the potential involvement of a specific taxpayer (or of a related taxpayer) in tax non-compliance

Taxpayers who are under audit or investigation and those egregiously non-compliant will continue to be restricted from being eligible for the program.

Enhanced levels of relief

Under the updated VDP, relief from interest and penalties is available under a two-tier system:

• General relief – applies to unprompted applications and will provide 75% interest relief and 100% penalty relief
• Partial relief – applies to prompted applications and will provide 25% interest relief and up to 100% penalty relief

If the VDP application is eligible for relief, the taxpayer will also receive protection from prosecution and gross negligence penalties will not be assessed on the non‑compliance disclosed in the application.

Previously, the CRA’s two-tier system provided for relief under its General and Limited Programs. Under the General Program, only 50% of the interest (excluding the three most recent years) and all the penalties were relieved, while under its Limited Program, the CRA provided relief from gross-negligence penalties only and did not provide any interest relief. The Limited Program applied when certain conditions were met, such as the taxpayer’s size and sophistication (i.e. whether it was a large corporation).

Updated supporting documentation requirements

The CRA has clarified and updated the documents that must be included with a taxpayer’s VDP application. Taxpayers will be required to:

• complete and submit application form RC199 with their VDP application; previously, form RC199 was not required to be submitted, as long as the information in the form was provided in the application
• include in their VDP application supporting documentation (e.g. returns, forms, etc.) that is needed to correct a non-compliance, but the documentation will be limited to the most recent:
  • six years for Canadian-sourced income or assets, and
  • ten years for foreign-sourced income or assets

Previously, the CRA required that the taxpayer’s VDP application included documentation for all relevant years when those years contained inaccurate, incomplete or unreported information relating to their tax obligations.

Conditions relaxed for a second application

The CRA has clarified that it may consider a second application for the VDP in situations when:

• the circumstances are beyond the taxpayer’s control, or
• the disclosure is related to a different matter than a previous application

Previously, the CRA stated that a taxpayer would be eligible to obtain the benefits of the VDP only once and that a second application would generally only be considered in situations when both of the above conditions were met.

The takeaway

Taxpayers that may not have qualified under the previous VDP may now qualify under the updated VDP effective October 1, 2025, particularly large corporations that previously may have only been entitled to relief from gross negligence penalties. Changes to the VDP are expected to increase the number of disclosures made to the program, because the CRA has:

• relaxed the circumstances to be eligible for the VDP
• enhanced the amount of interest relief that is available
• provided additional clarity and comfort on how and when a disclosure can be made

^{1. CRA’s GST/HST Memorandum 16‑5‑1, Voluntary Disclosures Program (Applications Received On or After October 1, 2025) (September 2025) provides information on the updated VDP as it relates to GST/HST and excise tax matters, excise duties imposed under the Excise Act, and various other taxes (other than income tax) that are administered by the CRA. For more information, see our Tax Insights “Changes to the Canada Revenue Agency’s Voluntary Disclosures Program for GST/HST and other taxes.”}