At a Glance: Effective October 1, 2025, the Canada Revenue Agency substantially overhauled the Voluntary Disclosures Program. The General Program and Limited Program have been replaced. A new pathway exists for prompted disclosures. The corporate gross revenue threshold has been eliminated. The program’s scope has been expanded to additional statutes. And the amended return requirement has been reduced. This guide explains what changed, what it means in practice — with three concrete scenarios — and why early legal advice under solicitor-client privilege remains essential.

Update — SLITA Expansion: In addition to the core October 2025 overhaul covered throughout this article, the CRA confirmed that the revised VDP framework now formally extends to non-compliance under the Select Luxury Items Tax Act. A dedicated section below addresses this expansion.

Overview: The October 2025 VDP Overhaul — The Most Significant Reform in Years

The Voluntary Disclosures Program (VDP), also known as tax amnesty, is a critical component of the Canada Revenue Agency’s compliance framework. It offers taxpayers a structured pathway to rectify past errors or omissions in their tax obligations without the threat of severe penalties or criminal prosecution. For three decades, the firm’s experienced Canadian tax lawyers have been filing voluntary disclosure applications on behalf of clients across the full range of tax non-compliance. A foundational introduction to the VDP — including the five core eligibility conditions, the application process, and the role of solicitor-client privilege — is available in the firm’s tax evasion and voluntary disclosure primer.

Effective October 1, 2025, the CRA overhauled the VDP. The key changes are the replacement of the General Program and Limited Program with a general-relief tier and a partial-relief tier, the introduction of a formal pathway for prompted disclosures, the expansion of VDP scope to additional statutes including the Select Luxury Items Tax Act, the elimination of the $250 million corporate gross revenue threshold, a simplified Form RC199 application, and a reduced amended return requirement. These changes are governed by two new circulars: Information Circular IC00-1R7 (Income Tax Act) and GST/HST Memorandum 16-5-1 (Excise Tax Act).

“The October 2025 overhaul is the most meaningful expansion of the VDP in years. The partial-relief tier alone opens a formal door for taxpayers who were previously shut out entirely because they had received CRA contact before filing. But the new prompted/unprompted distinction is also the most consequential judgment call in the framework: getting it wrong costs a taxpayer 50 percentage points of interest relief. That analysis must be done carefully and under the protection of solicitor-client privilege before the application is structured.” 

— David J. Rotfleisch, Certified Specialist in Taxation (Law Society of Ontario)

The VDP Before October 1, 2025: General Program and Limited Program

Prior to October 1, 2025, the VDP employed a two-tier structure. The General Program was available to taxpayers whose errors were unintentional, offering 100% penalty relief and 50% interest relief, with no interest relief if the return was less than three years overdue. The Limited Program applied to more serious cases and provided protection from criminal prosecution and relief from gross negligence penalties, but no interest relief and no relief from other monetary penalties.

A significant and often overlooked feature of the pre-October 2025 Limited Program was that it automatically applied to any applicant whose corporation had gross revenue exceeding $250 million. This threshold effectively barred larger corporations from the more favourable General Program regardless of the nature of their non-compliance — a blunt provision the October 2025 overhaul has eliminated entirely.

A fundamental limitation of the pre-October 2025 regime was its treatment of prompted disclosures. A taxpayer who had received an education letter or other compliance communication from the CRA about a specific issue was often treated as having lost voluntariness and was therefore disqualified from the VDP in respect of that issue.

The October 2025 VDP Overhaul: General Relief, Partial Relief, and Prompted Disclosures

Effective October 1, 2025, the CRA replaced the General Program and Limited Program with two new tiers governed by IC00-1R7 (Income Tax Act non-compliance) and GST/HST Memorandum 16-5-1 (Excise Tax Act non-compliance).

General Relief — Unprompted Disclosures

General relief is reserved for unprompted applications — submitted before the CRA has issued any compliance communication regarding the specific issue. Taxpayers receive 100% penalty relief and 75% interest relief, plus protection from criminal prosecution. This is more favourable than the pre-October 2025 General Program, which offered only 50% interest relief.

An important clarification confirmed by the CRA: an application made following an education letter that offers general guidance on a topic — without identifying a specific error or omission on the taxpayer’s account — is still classified as unprompted and qualifies for general relief. A taxpayer who has received a general CRA education letter on rental income reporting has not necessarily lost access to the general-relief tier when making a disclosure about unreported rental income.

Partial Relief — Prompted Disclosures

Partial relief is a new category created for prompted disclosures — applications submitted after the taxpayer has received CRA compliance communication that identifies the specific issue being disclosed. The partial-relief tier provides up to 100% penalty relief and 25% interest relief, plus criminal prosecution protection. Under the pre-October 2025 regime, a taxpayer in this situation was typically disqualified from the VDP entirely.

Under IC00-1R7, a prompted application arises where the taxpayer has received verbal or written communication about an identified compliance issue, including a letter that identifies a specific error or omission on the taxpayer’s account, a deadline to correct an error, or where the CRA has already received information from third-party sources regarding the potential involvement of a specific taxpayer in tax non-compliance. An application remains ineligible — not merely prompted — where a CRA tax audit or investigation has already been initiated.

“The partial-relief tier is genuinely new and genuinely useful — but it is not a consolation prize to be accepted without analysis. In many cases where a taxpayer has received CRA correspondence, a careful reading of that correspondence will reveal that it was general in nature and does not disqualify the taxpayer from the general-relief tier. Every client’s CRA communications should be reviewed by a Canadian tax lawyer before the disclosure is characterized as prompted.” 

— David J. Rotfleisch, Certified Specialist in Taxation (Law Society of Ontario)

Third-Party Data Sources: A Growing Trigger for Prompted Status

One of the most practically significant aspects of the prompted-application definition in IC00-1R7 is its extension to cases where the CRA has already received information from third-party sources regarding the potential involvement of a specific taxpayer in tax non-compliance. This captures a wide and rapidly expanding category of situations.

The CRA receives substantial volumes of taxpayer-specific data through multiple channels. Under the Common Reporting Standard and bilateral tax information exchange agreements, the CRA receives account information from foreign financial institutions about Canadian residents with offshore accounts. The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) reports suspicious transaction information to the CRA. The Canada Border Services Agency shares importation data, making luxury vehicle cross-border acquisition strategies particularly vulnerable to prompted-application classification. And the CRA has increasingly obtained data from cryptocurrency exchange platforms operating in Canada.

The practical implication is that taxpayers with offshore accounts, unreported cryptocurrency income, or luxury vehicle transactions should not assume that the absence of a CRA letter means their non-compliance is unknown to the agency. A taxpayer who waits to receive a letter before filing a VDP application risks finding that the letter has already converted their potential unprompted application into a prompted one, at a cost of 50 percentage points of interest relief.

Comparison of Relief Tiers: Pre- and Post-October 2025

Three Practical Scenarios: Unprompted, Prompted, and Audit Commenced

The following three scenarios use a common fact pattern to illustrate the material difference in outcome depending on the stage at which a taxpayer seeks to correct their non-compliance. The taxpayer owns two residential rental properties and has failed to report approximately $30,000 per year in rental income over the past four years, resulting in approximately $120,000 in unreported income and an estimated $45,000 in tax owing.

Scenario A: No Prior CRA Contact — General Relief Available

The taxpayer has received no CRA communication about rental income. There is no audit or investigation underway. The taxpayer retains a Canadian tax lawyer, who conducts a privileged assessment of all non-compliance and files an unprompted VDP application. On acceptance under the general-relief tier, the taxpayer receives 100% penalty relief and 75% interest relief. The $45,000 in tax is payable in full.

The late-filing penalty under section 162(1) of the Income Tax Act — 5% of the balance owing plus 1% per month for up to 12 months — is eliminated. The repeated failure to report penalty under section 162(2) for subsequent years, and any gross negligence penalty exposure under section 163(2) at 50% of the understated tax (potentially $22,500 on the $45,000 owing), are also eliminated. Depending on the applicable penalty provisions asserted, total penalty relief could exceed $25,000 to $35,000. Interest on the $45,000 over four years is further reduced by 75%. This is the best possible outcome.

Scenario B: CRA Has Identified a Specific Compliance Issue — Partial Relief Only

The taxpayer has received a CRA letter that specifically identifies the taxpayer’s account as showing rental property ownership on municipal property tax records but no corresponding rental income reported, and requests that the taxpayer confirm their filing position within 30 days. This communication identifies a specific compliance issue on the taxpayer’s account and sets a compliance deadline. Under IC00-1R7, this is a prompted application.

The taxpayer retains a Canadian tax lawyer, who files a prompted VDP application. On acceptance under the partial-relief tier, the taxpayer receives up to 100% penalty relief — similar to Scenario A — but only 25% interest relief, compared to 75% under general relief. The difference of 50 percentage points of interest relief on $45,000 in tax over four years at a prescribed rate of 9% per annum (compounding daily) represents several thousand dollars in additional cost that Scenario A would have avoided. The $45,000 in tax remains payable in full.

Scenario C: Audit Already Commenced — VDP Ineligible Entirely

The taxpayer has received a formal CRA audit commencement letter confirming that the CRA has initiated a tax audit of the taxpayer’s income tax returns, including a request for records related to rental income and expenses. An audit has been initiated in respect of the information the taxpayer would disclose. Under IC00-1R7 and the confirmed Canada.ca VDP eligibility conditions, a VDP application is not voluntary — and is therefore ineligible — where an audit or investigation has been initiated against the taxpayer in respect of the information being disclosed. The taxpayer cannot access the VDP at all.

The taxpayer in Scenario C faces the full exposure: 100% of applicable penalties, 100% of accrued interest, and the possibility of gross negligence penalty assessment under section 163(2) if the CRA concludes the underreporting was wilfully negligent. The taxpayer’s only recourse is to respond to the audit under the guidance of an experienced Canadian tax litigation lawyer, contest any penalties through the objection and Tax Court process, and explore whether the taxpayer relief provisions under subsection 220(3.1) of the Income Tax Act provide any limited avenue for discretionary interest cancellation outside the VDP framework.

The contrast between Scenarios A, B, and C illustrates a critical planning principle: the value of a VDP application decays rapidly as CRA contact progresses from no contact (general relief available) to specific compliance communication (partial relief only) to audit commencement (VDP unavailable entirely). Every day of delay carries a non-trivial cost in terms of relief options foreclosed.

Egregious Non-Compliance: The Ineligibility Threshold Under IC00-1R7

The October 2025 overhaul preserves an important restriction that is often underappreciated: taxpayers who are egregiously non-compliant remain ineligible for the VDP regardless of whether their application is prompted or unprompted. This exclusion is separate from and in addition to the ineligibility that arises where an audit or investigation has been initiated.

IC00-1R7 identifies a number of factors the CRA considers in assessing whether non-compliance rises to the level of egregious. These include the dollar amount of the non-compliance relative to the taxpayer’s overall tax obligations, the length of time over which the non-compliance occurred, whether the taxpayer took active steps to conceal the non-compliance, whether the taxpayer is a sophisticated individual or corporation with access to professional advice, and whether the non-compliance involved deliberate misrepresentation or fraud rather than mere oversight or error. No single factor is determinative, and the CRA applies a holistic assessment.

“Egregious non-compliance is not a label the CRA should apply lightly, and the courts have confirmed that they will not tolerate a mechanical application of the concept without genuine individualized assessment. In my experience, many taxpayers whose situations appear serious on paper — large amounts, multiple years, offshore elements — still have strong arguments for VDP eligibility when the full facts are properly presented. The analysis must be done under solicitor-client privilege, before any application is filed, by a lawyer with the experience to make that judgment correctly.” — David J. Rotfleisch, Certified Specialist in Taxation (Law Society of Ontario)

The egregious non-compliance threshold is particularly relevant for taxpayers with large-dollar, multi-year offshore non-compliance — for example, a high-net-worth individual who has maintained undisclosed offshore accounts for more than a decade and has taken active steps to conceal them from the CRA. Such a taxpayer may find that the VDP is unavailable, and that the taxpayer relief provisions under subsection 220(3.1) of the Income Tax Act represent the only available avenue for partial relief.

The Judicial Review Jurisprudence on VDP Eligibility and Egregious Conduct

The Federal Court jurisprudence on VDP applications provides important context for understanding how the egregious non-compliance threshold operates in practice. Two decisions establish the foundational principles.

In Lanno v. Canada (Customs and Revenue Agency), 2005 FCA 153, 2005 DTC 5245, the Federal Court of Appeal confirmed that VDP decisions are discretionary and reviewable on a reasonableness standard. The Court affirmed that the Minister has broad latitude in assessing whether a taxpayer’s non-compliance warrants full relief or more limited relief, and that courts will not substitute their own view of what outcome is appropriate. Lanno establishes the procedural framework within which all subsequent VDP eligibility challenges operate: the CRA’s characterization of non-compliance as intentional, deliberate, or egregious will be upheld by a reviewing court unless it falls outside the range of reasonable outcomes.

In Stemijon Investments Ltd. v. Canada (Attorney General), 2011 FCA 299, (2011) 425 NR 341, the Federal Court of Appeal confirmed that the CRA cannot fetter its discretion by applying a rigid policy without genuine consideration of the individual taxpayer’s circumstances. The Court found that a decision that is the product of fettered discretion is per se unreasonable. This means that a CRA officer who mechanically applies the egregious non-compliance classification without genuinely weighing the taxpayer’s specific facts has made a reviewable error, and that a judicial review application on fettering grounds has a realistic prospect of success where the CRA has applied the exclusion formulaically.

Reading these decisions together with IC00-1R7, the practical lesson is two-fold. First, the egregious non-compliance exclusion is a genuine and significant barrier for taxpayers with large-dollar, multi-year, deliberate non-compliance involving active concealment. The CRA’s application of that exclusion, if genuinely grounded in the taxpayer’s specific circumstances, is highly likely to be upheld on judicial review. Second, a mechanical or formulaic application of the exclusion — without genuine individualized assessment — is vulnerable to challenge under Stemijon. Taxpayers whose non-compliance raises any question of egregious classification should obtain a preliminary assessment from an experienced Canadian tax litigation lawyer under the protection of solicitor-client privilege before any application is filed. Where gross negligence penalties are in play alongside the VDP question, the firm’s analysis of gross negligence penalties in Canadian tax law provides relevant background on the overlapping standard.

Procedural Changes: RC199, Return Requirements, and the Corporate Threshold Eliminated

The October 2025 reforms introduced a new simplified version of Form RC199 (Voluntary Disclosures Program Application) and rewrote the governing circulars in plain language. For GST/HST-specific voluntary disclosure considerations, see the firm’s GST/HST practice.

The Document Requirement: Six Years, Four Years, and Ten Years

Under IC00-1R7, taxpayers need only include documentation for a specified number of years. For Canadian-sourced income or assets, the most recent six years. For foreign-sourced income or assets, the most recent ten years. For GST/HST-related non-compliance under GST/HST Memorandum 16-5-1, the most recent four years. These are documentation requirements only: taxpayers must still disclose all known non-compliance across all years. The CRA retains the right to request additional documentation for years outside these windows.

The 10-Year Interest Relief Ceiling

Distinct from the documentation requirement is the 10-year limitation period on the CRA’s ability to grant relief. Under subsection 220(3.1) of the Income Tax Act, the Minister’s ability to cancel penalties is limited to any penalty that could apply to any tax year that ended within the previous 10 years before the calendar year in which the application is filed. Similarly, interest relief is limited to interest that accrued during the 10 calendar years preceding the year in which the application is made.

The $250 Million Corporate Threshold: Eliminated

Under the pre-October 2025 rules, any corporation with gross revenue exceeding $250 million was automatically assigned to the Limited Program regardless of the nature of its non-compliance. IC00-1R7 has eliminated this threshold. Large corporations are now assessed on the same prompted/unprompted basis as all other applicants.

Subsequent Applications: The Single-Condition Test

IC00-1R7 relaxed the second-application condition from requiring both — circumstances beyond the taxpayer’s control, and a different matter — to requiring only one of the two. A subsequent application may now be considered where the circumstances are beyond the taxpayer’s control or the application relates to a different matter.

The Pre-Disclosure Discussion: Still Available and Now Easier

Taxpayers who are uncertain about their eligibility can request an anonymous, informal, non-binding pre-disclosure discussion with the CRA using the online callback request form. This discussion does not constitute acceptance into the VDP and has no impact on the CRA’s ability to audit or penalize the taxpayer. However, a taxpayer who discloses identifying details during a pre-disclosure discussion without first retaining a Canadian tax lawyer risks losing the protection that makes the discussion truly safe. The pre-disclosure discussion is a useful orientation tool, not a substitute for legal advice.

Voluntary Disclosure in Estate Administration: Filing on Behalf of a Deceased Taxpayer

When a taxpayer dies leaving unfiled tax returns, unreported income, or other tax non-compliance, the deceased taxpayer’s legal representative — the executor or administrator of the estate — is personally responsible for administering the estate’s tax obligations. The VDP is available to estates and their legal representatives on the same terms as living taxpayers. The same general-relief and partial-relief tiers apply, and the same five eligibility conditions must be satisfied.

Estate VDP applications have particular urgency. The CRA will not issue a clearance certificate — which the executor needs to distribute estate assets without personal liability — until all outstanding tax obligations of the deceased are resolved. An executor who discovers prior non-compliance must address it through a VDP application or other means before the estate can be distributed safely.

Executors should also be aware that the discovery of non-compliance in the course of estate administration does not automatically convert the VDP application into a prompted one. The deceased taxpayer’s personal failure to file or report is not a CRA communication about the specific issue. The application may still qualify as unprompted where the CRA has not separately identified the deceased’s non-compliance. An experienced Canadian tax litigation lawyer should assess this question as part of the overall estate administration strategy.

“Estate VDP applications are among the most time-sensitive disclosures we handle. The clearance certificate creates a hard deadline that concentrates the executor’s mind wonderfully. But the strategic question of whether the application is prompted or unprompted — which turns on whether the CRA has independently identified the deceased’s non-compliance — requires careful analysis before the application is filed. Getting it wrong forfeits tens of thousands of dollars in interest relief that a properly structured unprompted application would have preserved.” — David J. Rotfleisch, Certified Specialist in Taxation (Law Society of Ontario)

Estate VDP Scenario: Executor Discovers Unreported Foreign Income

Margaret is the executor of her late father’s estate. Her father, a retired businessman, passed away in early 2026. In the course of reviewing his financial records to prepare the terminal return, Margaret discovers that her father maintained two offshore bank accounts in Switzerland that were never disclosed to the CRA and generated approximately $40,000 per year in interest income for the past eight years, none of which was reported on his Canadian income tax returns. The estimated tax owing on the unreported foreign income is approximately $120,000, and the accounts were required to be disclosed annually on Form T1135 — none of which was filed.

Margaret retains a Canadian tax lawyer immediately, before making any contact with the CRA. The lawyer’s privileged assessment concludes that the CRA has not independently identified the offshore accounts, the most recent eight years fall largely within the 10-year interest relief window, and the documentation requirement for foreign-sourced income is 10 years — which Margaret can satisfy from the bank records.

The application is structured as an unprompted disclosure under the general-relief tier. On acceptance, the estate receives 100% penalty relief — eliminating both the late-filing penalties and the substantial T1135 failure-to-file penalties, which can reach $2,500 per year under subsection 162(7) of the Income Tax Act — and 75% interest relief on the accrued interest within the 10-year window. The $120,000 in tax is payable in full by the estate before the clearance certificate is issued. For further guidance on the tax evasion and voluntary disclosure framework that applies to estates, see the firm’s tax evasion and voluntary disclosure primer.

Expanded Scope of the VDP: The Select Luxury Items Tax Act and Other Statutes

One of the less-publicized but practically significant aspects of the October 2025 overhaul is the formal expansion of the VDP beyond the Income Tax Act. The revised framework now covers non-compliance under the Select Luxury Items Tax Act (SLITA), the Excise Tax Act, and the Underused Housing Tax Act.

The SLITA expansion is particularly relevant for luxury vehicle vendors and purchasers. Prior to October 2025, a vendor who had not registered under the SLITA or had failed to remit luxury tax on subject vehicle transactions had no formal VDP mechanism available. Under the expanded VDP, an unregistered vendor or a purchaser who incorrectly claimed an exemption certificate can now file a formal VDP application seeking penalty and interest relief on the same terms as other disclosures. Because the SLITA only came into force on September 1, 2022, the maximum period of SLITA non-compliance is approximately four years as of mid-2026 — well within the six-year documentation window. For a full explanation of the underlying luxury tax rules, see the firm’s Canadian tax lawyer’s guide to the luxury tax.

The CRA has significant data-matching capacity through vehicle registration records, title transfer data, and Canada Border Services Agency importation records. Vendors who have transacted in subject vehicles above the $100,000 threshold without registering under the SLITA are at meaningful risk of identification even without a targeted audit. The window for an unprompted voluntary disclosure — which carries 100% penalty relief and 75% interest relief — closes permanently the moment the CRA initiates any compliance contact regarding the SLITA non-compliance.

If the VDP Is Unavailable: Relief Alternatives

Not every taxpayer with prior non-compliance will qualify for the VDP. Ineligibility can arise because an audit or investigation has already been initiated, because the non-compliance is classified as egregious, because the five eligibility conditions cannot be satisfied, or because the CRA denies the application after review.

Where the VDP is unavailable, two alternative relief mechanisms may be relevant. The first is the taxpayer relief provisions under subsection 220(3.1) of the Income Tax Act, administered under Information Circular IC07-1, Taxpayer Relief Provisions. These provisions give the CRA discretion to cancel or waive penalties and interest outside the formal VDP framework where the taxpayer can demonstrate extraordinary circumstances such as serious illness or incapacity, natural disaster, financial hardship, or a demonstrable CRA error or delay. Unlike the VDP, a taxpayer relief application does not require that the non-compliance be voluntary or that it predate any CRA contact — it is available even where an audit is underway or has concluded. For taxpayers navigating an active audit alongside a taxpayer relief application, the firm’s guide on surviving a CRA tax audit addresses the intersection of audit rights and available relief mechanisms.

The second alternative is a remission order under section 23 of the Financial Administration Act. A remission order is a Governor in Council decision — effectively a Cabinet order — to forgive tax, interest, or penalties where collection would be unjust or contrary to the public interest. Remission applications for federal income tax are directed to the Department of Finance. The threshold is high: the applicant must demonstrate that strict enforcement would produce a result that is unduly harsh, contrary to the intention of the legislation, or contrary to the public interest. The CRA’s published guidelines identify four grounds: extreme hardship; financial setback coupled with extenuating factors; unintended result of the legislation; and incorrect action or advice by CRA officials. Remission orders are rare and represent a genuine last resort. For a detailed guide to the process, see the firm’s overview of tax remission orders and the firm’s judicial review of remission order application for guidance on challenging a denied remission.

Taxpayers who have been denied VDP relief or who cannot satisfy the eligibility conditions should obtain legal advice on whether the taxpayer relief provisions or a remission order application are viable in their circumstances. Where gross negligence penalties are in issue alongside the underlying tax debt, the interaction between the penalty standard and the taxpayer relief discretion requires careful integrated analysis. For a privileged consultation on any of these alternative relief pathways, contact the firm through canadiantaxamnesty.ca.

Pro Tax Tips: The Indispensable Role of a Knowledgeable Canadian Tax Lawyer in VDP Applications

The October 2025 VDP overhaul makes the program more accessible but also more strategically complex. Whether an application qualifies for general relief or only partial relief depends on the nature of any prior CRA communications — including whether third-party data has already reached the CRA — and getting that determination wrong can cost a taxpayer 50 percentage points of interest relief. The three scenarios above illustrate how dramatically the available outcomes diverge depending solely on the timing of legal advice. Solicitor-client privilege — which protects communications between a taxpayer and a Canadian tax lawyer but not an accountant — is especially important here, because it allows for a complete and frank assessment of all non-compliance without risk of that information being used against the taxpayer.

Our experienced Canadian tax lawyers have submitted thousands of voluntary disclosures over three decades and are well-positioned to assess eligibility under the expanded VDP framework, determine whether the egregious non-compliance threshold applies, characterize prior CRA communications correctly, structure applications for optimal relief, and prepare Federal Court judicial review applications if the CRA unfairly denies a disclosure. For a privileged consultation, contact the firm through canadiantaxamnesty.ca.

FAQs: CRA Voluntary Disclosures Program — Updated for October 2025

What changed in the VDP on October 1, 2025?

The CRA replaced the General Program and Limited Program with a general-relief tier (100% penalty relief, 75% interest relief, for unprompted disclosures) and a partial-relief tier (up to 100% penalty relief, 25% interest relief, for prompted disclosures). The $250 million corporate gross revenue threshold was eliminated. The program was expanded to cover the Select Luxury Items Tax Act, Excise Tax Act, and Underused Housing Tax Act. The amended return requirement was reduced to 6 years for Canadian matters, 4 years for GST/HST matters, and 10 years for foreign matters. A new simplified Form RC199 was introduced.

What is a prompted versus unprompted disclosure?

An unprompted disclosure is filed before the CRA has issued any compliance communication identifying the specific issue. It qualifies for general relief: 100% penalty relief and 75% interest relief. A prompted disclosure is filed after the CRA has communicated about the specific issue — including through third-party data received by the CRA — and qualifies for partial relief only. A general CRA education letter that does not identify a specific error or omission on the taxpayer’s account does not convert an application to prompted. This distinction requires careful legal analysis.

Can I apply for the VDP if the CRA has already started an audit?

No. Where an audit or investigation has been initiated against the taxpayer in respect of the information being disclosed, the application is not voluntary under IC00-1R7 and is ineligible for the VDP entirely. This is not a matter of partial relief — the VDP is simply unavailable once an audit has commenced on the specific issue. The taxpayer must respond to the audit on its own merits and explore alternative remedies such as the taxpayer relief provisions under subsection 220(3.1) of the Income Tax Act.

How many years of returns must be submitted?

For Canadian-sourced income or assets: the most recent six years. For foreign-sourced income or assets: the most recent ten years. For GST/HST non-compliance: the most recent four years. Taxpayers must still disclose all known non-compliance across all years — the reduced documentation window does not create a safe harbour for older non-compliance.

What is the 10-year interest relief limitation?

Under subsection 220(3.1) of the Income Tax Act, the CRA’s ability to grant interest relief is limited to interest that accrued during the 10 calendar years preceding the year in which the application is made. This ceiling is separate from the 6-year documentation requirement.

Does the VDP now cover the luxury tax?

Yes. As of October 1, 2025, the VDP formally covers non-compliance under the Select Luxury Items Tax Act. Since the SLITA only came into force in September 2022, the maximum non-compliance period is approximately four years, making the record-keeping burden relatively modest. 

What is egregious non-compliance and why does it matter?

Egregious non-compliance is a distinct VDP ineligibility ground under IC00-1R7. The CRA considers factors including dollar amount, length of time, active concealment, sophistication, and whether deliberate misrepresentation was involved. The Federal Court of Appeal confirmed in Lanno v. Canada (Customs and Revenue Agency), 2005 FCA 153, that the CRA has broad discretion in making this assessment, and that its characterization of non-compliance as egregious will be upheld on judicial review unless it falls outside the range of reasonable outcomes. However, Stemijon Investments Ltd. v. Canada (Attorney General), 2011 FCA 299, establishes that a mechanical or formulaic application of the exclusion — without genuine individualized consideration of the taxpayer’s specific circumstances — is a reviewable error. A preliminary assessment by a Canadian tax lawyer under solicitor-client privilege is essential before filing where any question of egregious classification exists.

Was the $250 million corporate threshold eliminated?

Yes. IC00-1R7 eliminated the threshold that automatically assigned corporations with gross revenue above $250 million to the Limited Program. Large corporations are now assessed on the same prompted/unprompted basis as all other applicants.

Can the executor of an estate file a VDP application on behalf of a deceased taxpayer?

Yes. Estates and their legal representatives can apply for VDP relief on behalf of a deceased taxpayer on the same terms as living taxpayers. Estate VDP applications have particular urgency because the CRA will not issue a clearance certificate — which the executor needs to distribute estate assets without personal liability — until all outstanding tax obligations are resolved.

Could third-party data received by the CRA make my application a prompted one?

Yes. IC00-1R7 expressly provides that an application is prompted where the CRA has already received information from third-party sources about the specific taxpayer’s potential non-compliance. This includes data from foreign financial institutions under the Common Reporting Standard, from FINTRAC, from cryptocurrency exchanges, and from the CBSA. Taxpayers with offshore accounts, unreported crypto income, or luxury vehicle transactions should not assume the absence of a CRA letter means their non-compliance is unknown.

Why use a Canadian tax lawyer rather than an accountant?

Solicitor-client privilege protects communications between a taxpayer and a Canadian tax lawyer. No equivalent protection exists for accountants — the CRA can compel an accountant to disclose client communications. Disclosing all non-compliance to a Canadian tax lawyer first ensures that information cannot be used against the taxpayer. An accountant retained by the lawyer to prepare the amended returns falls under the same privilege umbrella.

Is the pre-disclosure discussion still available?

Yes. Taxpayers can request an anonymous, informal, non-binding pre-disclosure discussion with the CRA using the online callback request form. The discussion does not constitute acceptance into the VDP. However, the discussion should be approached with legal guidance to avoid disclosing identifying information that could compromise privilege protection.

Can I file a second VDP application?

Under IC00-1R7, a subsequent application may be considered where the circumstances are beyond the taxpayer’s control or the application relates to a different matter than the previous application. Prior to October 2025, both conditions had to be met.

Does the VDP apply to GST/HST non-compliance?

Yes. GST/HST non-compliance is covered under GST/HST Memorandum 16-5-1 with a four-year documentation requirement. A special wash transaction category provides 100% penalty and interest relief where the non-compliance had no net tax effect. For GST/HST-specific guidance, see the firm’s GST/HST practice.

What happens if the CRA denies my VDP application?

The taxpayer may request a second administrative review from the Assistant Director of the Shawinigan National Verification and Collections Centre. If also denied, a Federal Court judicial review application is available under the procedure in paragraphs 40 and 41 of IC00-1R7. There is no right of objection under subsection 165(1.2) of the Income Tax Act in respect of a discretionary VDP decision. A properly prepared disclosure application lays the groundwork for judicial review if the CRA acts unreasonably. Where the denial is accompanied by gross negligence penalty assessments, the firm’s analysis of the applicable standard provides relevant background. 

What if I do not qualify for the VDP at all?

The taxpayer relief provisions under subsection 220(3.1) of the Income Tax Act (governed by Information Circular IC07-1) and a remission order under section 23 of the Financial Administration Act are the two primary alternative relief mechanisms. The taxpayer relief provisions are available even where an audit is underway and do not require prior voluntariness — they apply on the basis of extraordinary circumstances such as illness, financial hardship, or CRA error. A remission order requires demonstrating that strict enforcement would be unjust or contrary to the public interest and is directed to the Department of Finance — a higher threshold and a rarer remedy. For the full process, see the firm’s overview of tax remission orders and the firm’s judicial review of remission order application. Where gross negligence penalties are in issue alongside the underlying tax, the interaction between the penalty standard and the discretionary relief analysis requires integrated legal advice. 

Does the VDP apply to non-residents with Canadian tax obligations?

Yes. Non-residents with Canadian tax filing obligations can apply for VDP relief on the same general terms as residents, with both general-relief and partial-relief tiers available. Common categories of non-resident non-compliance addressed through the VDP include: failure to file a Canadian departure return on emigration; failure to withhold and remit Part XIII tax on payments of Canadian-source income such as rents, dividends, and royalties to non-residents; failure to comply with section 116 certificate obligations on dispositions of taxable Canadian property; failure to file Canadian income tax returns in respect of Canadian-source business or employment income; and failure to file Form T1135 for foreign asset disclosure obligations. Non-resident VDP applications often involve additional complexity including the interaction with applicable tax treaty positions, withholding tax obligations under Part XIII, and the determination of whether the taxpayer was in fact resident in Canada during the relevant period. 

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Disclaimer

This article provides broad information. It is only accurate as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on as tax advice. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.