On September 10, 2025, the Canada Revenue Agency (“CRA”) announced significant changes to its Voluntary Disclosure Program (“VDP”) with the release of Information Circular IC00-1R7. The updated guidance—which rolls back several of the program’s more controversial restrictions and provides greater flexibility for those seeking to correct unintentional filing errors and omissions—are expected to be greeted warmly by taxpayers and advisors.

These changes mark a meaningful shift from the CRA’s approach over the past several years. In 2018, the agency significantly narrowed VDP eligibility and reduced the scope of penalty and interest relief, reflecting its growing confidence in enhanced audit powers and increased access to global financial information, effectively signalling that a more generous disclosure regime was no longer necessary. The recent revisions suggest a recalibration of that position, re-emphasizing the VDP’s role in encouraging voluntary compliance where errors are non-deliberate.

Notably, while the CRA continues to position the VDP as a program generally intended to be accessed only once, the new circular confirms that subsequent applications may be accepted where the issues are unrelated or arise from circumstances beyond the taxpayer’s control.

Key changes to the VDP

Beyond suggesting a policy shift, the new circular makes several concrete changes to how voluntary disclosures will be assessed and processed, including:

  • Removing the General Program and Limited Program distinction introduced in 2018. All taxpayers will now be treated under a single framework.
  • Softening the voluntary requirement condition. Voluntary disclosures will now generally only be considered not “voluntary” if an audit or investigation has been initiated against the taxpayer or a related taxpayer in respect of the information being disclosed. Previously, the CRA could deny relief under broader conditions, such as when the taxpayer was merely aware of a pending enforcement action.
  • Requiring VDP applications to include the supporting documentation needed to correct the non-compliance for the most recent six years or, in the case of assets and income located outside Canada, 10 years.
  • Removing the requirement that an application involve an amount subject to a penalty. Instead, the application must involve an amount subject to either a penalty or interest.
  • Simplifying the VDP application process and Form RC199.

The circular also introduces new categories of VDP applications as “unprompted” or “prompted.” The level of relief available will depend on which category applies:

  • Unprompted applications generally include situations where there has been no communication from the CRA about the item being disclosed. The relief available under this category is significant: up to 75% relief of applicable interest (the prior limit was 50% under the 2018 General Program) and 100% relief of applicable penalties.
  • Prompted applications generally include situations where there has been some form of communication from the CRA about the item being disclosed (but not a full audit or investigation). The relief available under this category is more limited but still substantial: up to 25% relief of applicable interest and up to 100% relief of applicable penalties.

Parallel GST/HST and other indirect tax changes

Alongside IC00-1R7, the CRA issued GST/HST Memorandum 16-5-1, which updates the VDP framework for indirect taxes, including: GST/HST, excise duties and taxes, the fuel charge, the luxury tax, the underused housing tax, the global minimum tax, as well as charges under the Air Travellers Security Charge Act and the Softwood Lumber Products Export Charge Act. The changes largely mirror those for income tax, but with some important distinctions:

  • Shorter look-back period: VDP applications involving GST/HST and other indirect taxes must generally include supporting documentation for the most recent four years, rather than six (domestic) or 10 (foreign) years as under the income tax rules.
  • Wash transaction relief: Full penalty and interest relief is available where the non-compliance involves eligible GST/HST wash transactions, consistent with the CRA’s existing wash transaction policy.
  • Same relief categories: As with income tax, applications are categorized as unprompted (eligible for up to 75% interest relief and 100% penalty relief) or prompted (eligible for up to 25% interest relief and up to 100% penalty relief). Protection from gross negligence penalties and prosecution is also available.

Key components that remain the same

While the 2025 revisions introduce meaningful changes, several core features of the VDP remain unchanged, including the following:

  • The requirement that a VDP application must include information that relates to a tax year that is at least one year past the due date for filing.
  • The requirement for payment, or a payment arrangement, for the estimated tax that will be owing.
  • The requirement that applications must meet the completeness test, though this requirement is now better defined.
  • The right to request pre-disclosure discussions with the CRA.
  • The same dispute rights continue to exist, including the right to a second administrative review and to pursue judicial review before the Federal Court (within 30 days of the CRA’s decision).
  • For transfer pricing matters, voluntary disclosures continue to be reviewed by the CRA’s Transfer Pricing Review Committee, and the established process for assessing transfer pricing issues under the VDP remains unchanged.

Practical implications of the revised VDP

The revisions to the VDP, which came into effect on October 1, 2025, are excellent news for taxpayers looking to come forward with past non-compliance. The CRA has clearly signaled a more balanced approach, one that encourages taxpayers to self-correct while still maintaining meaningful consequences for those who wait until after audit activity has begun.

That said, there are still areas where further guidance will be needed. For example, where the period of non-compliance exceeds 10 years and involves income or assets outside Canada, there is ongoing uncertainty as to how the CRA will address such cases. Relief is only available for penalties and interest for up to 10 years, and so complex cases require careful planning.

Transfer pricing cases, in particular, must be given special consideration before proceeding to the VDP, particularly in light of time limits under certain tax treaties to raise transfer pricing adjustments as well as the possible impact of correlative relief in foreign jurisdiction.

Every taxpayer’s situation is different, and the decision to make a VDP application may not be straightforward. If you are considering a voluntary disclosure, the authors would be pleased to discuss your situation and help you weigh the risks and benefits of proceeding.