Canada’s New Voluntary Disclosures Program (VDP) – 2025 Overview

(RGB Accounting Blog Article — updated and expanded with verified sources)

Introduction

Effective October 1, 2025, the Canada Revenue Agency (CRA) implemented major updates to the Voluntary Disclosures Program (VDP). The VDP gives taxpayers and registrants a structured pathway to correct past errors or omissions—such as unreported income, missed filings, or ineligible claims—and, where accepted, potentially receive relief from penalties, some interest relief, and protection from criminal prosecution for the issues disclosed. Any tax owing still must be paid in full.

The CRA’s intent with the 2025 update is to make the program easier to apply for, clearer to understand, and more accessible—while maintaining a key principle: the VDP is not meant to reward non-compliance or put a taxpayer who corrects late in a better position than someone who complied from the start.

What changed on October 1, 2025

1) A simplified application form (RC199)

The CRA redesigned Form RC199 (VDP Application) to reduce friction and standardize the information required. RC199 is now the expected entry point, and it can be submitted by mail/fax or electronically through CRA portals (My Account, My Business Account, or Represent a Client).

Why this matters: In practice, the CRA is increasingly emphasizing complete, well-documented submissions. A cleaner form helps applicants focus on what the CRA will actually assess: eligibility, completeness, and the nature of the non-compliance.

2) Increased eligibility (including some “prompted” situations)

Previously, many taxpayers became ineligible if the CRA had contacted them. Under the updated program, the CRA states the VDP is “less restrictive” and confirms that taxpayers who are prompted by communications about a potential non-compliance issue—such as an education letter about unreported income or ineligible expenses—may now still be eligible.

That said, the CRA continues to restrict eligibility where a taxpayer is under audit or investigation, or where the CRA considers the conduct egregiously non-compliant.

3) A clearer “voluntary” framework: unprompted vs. prompted

CRA guidance now distinguishes between:

• Unprompted applications: generally, where there has been no communication about an identified compliance issue, but may include cases where the taxpayer received a general education letter.
• Prompted applications: generally,y where there has been CRA communication about an identified issue (often with a request/deadline or third-party information pointing to a specific taxpayer).

This matters because it ties directly to the level of relief.

4) Updated relief tiers: general relief vs. partial relief

The CRA replaced older/less predictable outcomes with two relief tiers. If the CRA accepts the disclosure and grants relief:

• Unprompted → General relief: typically 100% penalty relief and 75% interest relief on applicable interest.
• Prompted → Partial relief: typically up to 100% penalty relief and 25% interest relief.

If relief is granted, the CRA also indicates that protection from prosecution for the disclosed issues will apply, and gross negligence penalties will not apply to the disclosed information.

Important reality check: The CRA is not required to grant relief in every case; decisions are discretionary and based on the merits of the application.

Documentation rules are now more explicit.

A valid VDP application must be complete and include the returns/forms/schedules needed to correct the non-compliance, plus supporting documentation covering specific periods:

• Foreign-sourced income or assets: last 10 years
• Canadian-sourced income or assets: last 6 years
• GST/HST matters: last 4 years

The CRA also notes that years within those ranges with no errors/omissions don’t need to be included. Still, CRAA officials may request additional records beyond these periods at their discretion.

Who should consider the VDP

The CRA’s examples of potentially eligible situations include: unreported/under-reported income, ineligible expenses, failure to remit payroll source deductions, missing information returns (e.g., T1135), undisclosed foreign-sourced income, GST/HST errors, and incomplete returns.

Common real-world triggers (for individuals and business owners)

• “We didn’t realize we had to file…” (late or missing returns)
• Foreign assets/income reporting gaps (e.g., T1135, offshore interest/dividends, rental income)
• Expense claims that don’t meet deductibility rules
• Payroll remittance shortfalls or late remittances
• GST/HST collection and filing errors

Key eligibility conditions (what the CRA looks for)

To qualify for relief, CRA guidance emphasizes that the application must generally be:

• Submitted before an audit or investigation is initiated about the information being disclosed
• At least one year / one reporting period past due
• Involve an error/omission with potential interest and/or penalties
• Complete and supported, including required documentation for applicable years
• Include payment of estimated tax owing or a request for a payment arrangement (subject to CRA approval)

How to apply (high-level process)

1. Gather and reconcile records (banking, income slips, invoices, ledgers, foreign statements, etc.).
2. Quantify the correction (what changes, which years, tax impact).
3. Prepare RC199 and amended/missing filings with supporting schedules and documentation.
4. Submit through CRA channels (online portals or mail/fax, as applicable).
5. Pay or request a payment arrangement for estimated amounts owing.

If you are unsure whether the VDP is appropriate, the CRA offers a pre-disclosure discussion service (informal, non-binding, can be anonymous before identity is revealed).

Benefits for businesses and individuals

1) Potential relief from penalties (and some interest relief)

Where accepted, the VDP can substantially reduce the financial impact of correcting prior non-compliance—particularly compared to being assessed through enforcement activity.

2) Reduced prosecution risk for the issue disclosed

CRA guidance indicates that accepted disclosures can avoid referral for criminal prosecution for the issue(s) disclosed.

3) Stronger compliance posture going forward

For business owners, a completed disclosure often serves as a “reset point”: records and filings align with CRA expectations, reducing operational risk and improving audit readiness.

Practical cautions (what to avoid)

• Incomplete disclosures: CRA may deny applications that lack sufficient information or if the taxpayer fails to respond adequately to follow-up requests.
• Waiting too long: once an audit/investigation is initiated on the issue, the application generally won’t be considered voluntary.
• Treating VDP as a planning tool: CRA explicitly frames the VDP as fairness-based relief—not a way to avoid obligations or “come out ahead intentionally.”

Conclusion

The October 1, 2025, VDP update is a meaningful modernization: a simpler RC199 application, broader eligibility (including certain CRA educational prompts), clearer rules on “voluntary” status, and defined relief tiers.

For individuals and businesses, the VDP can be a strategic opportunity to correct past filings, reduce penalty exposure, and strengthen compliance—but only when handled carefully, completely, and before enforcement begins.

At RGB Accounting, we guide clients through the full VDP workflow—eligibility assessment, documentation strategy, corrected filings, and submission—so your disclosure is accurate, complete, and aligned with your broader financial goals.

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