By Raymond M. Loucks, CPA, CA, TEP, FEA
Founder, Tranquility Tax Solutions
Published: June 2026
Tax situations can be complicated. A missed filing, an unreported specified foreign property, income that slipped through the cracks in a difficult year. These things happen. For many people, the anxiety of having an unresolved tax issue quietly grow in the background is far worse than the issue itself. The good news is that the Canada Revenue Agency (CRA) offers a formal path back into compliance, and as of October 2025, that path is significantly more accessible and can be more rewarding than it was before.
The CRA’s Voluntary Disclosures Program (VDP) has been substantially updated. The changes, which took effect for all applications received on or after October 1, 2025, simplify the process, broaden eligibility, and most importantly offer meaningfully better relief for taxpayers who come forward on their own.
What Is the Voluntary Disclosures Program?
The VDP allows individuals, corporations, trusts, and partnerships to correct errors or omissions in previous tax filings before the CRA contacts them. In exchange for voluntarily coming forward, the CRA may waive some or all of the penalties that would otherwise apply, reduce the interest owing, and confirm that the information disclosed will not be referred for criminal prosecution.
It is important to be clear about what the program does and does not do: the VDP provides relief on penalties and interest; it does not eliminate the underlying tax owing. The tax itself must still be paid. The program is not a pardon. It is, however, a significantly better outcome than having the same issue discovered through a CRA audit.
What Changed Under the October 2025 Update?
The previous framework divided applications into a “General Program” and a “Limited Program,” with the limited stream offering little or no interest relief and requiring taxpayers to waive their right to appeal any resulting assessments. For larger or more sophisticated taxpayers, the limited stream was often a deterrent to coming forward at all.
The updated program, set out in Information Circular IC00-1R7, replaces that structure with a straightforward two-tier model based on a single question: did the taxpayer come forward before or after the CRA identified the issue?
Unprompted Applications: Maximum Relief
An unprompted application is one where the taxpayer comes forward voluntarily, without having first received any communication from the CRA identifying a specific compliance issue with their file.
Under the updated rules, an unprompted application is normally eligible for:
- 100% penalty relief
- 75% interest relief
- No referral for criminal prosecution in respect of the disclosed information
This is a meaningful improvement over the previous program, which capped interest relief at 50% even in the most favourable circumstances.
Prompted Applications: Partial Relief Still Available
A prompted application is one made after the CRA has already contacted the taxpayer about a specific compliance issue. For example, after receiving a letter identifying an error or omission on the taxpayer’s account, or after the CRA has received third-party information indicating potential non-compliance.
Even in a prompted situation, where the taxpayer is no longer ahead of CRA, the updated program still offers:
- Up to 100% penalty relief
- 25% interest relief
- No referral for criminal prosecution in respect of the disclosed information
Importantly, the updated rules clarify that general outreach letters, educational communications, and reminder notices from the CRA do not constitute prompted contact. A taxpayer who received a general information letter about foreign reporting requirements, for example, would still be eligible to make an unprompted application if they have not received a communication about a specific issue on their own account.
The Waiver Requirement Is Gone
Under the previous limited stream, a taxpayer applying for relief was required to waive their right to object or appeal any CRA reassessments that flowed from the disclosure. That condition has been eliminated entirely. All applicants, whether unprompted or prompted, retain their full objection and appeal rights.
Most taxpayers are eligible to apply, including individuals, corporations, trusts, and partnerships. The updated program has also removed the restrictions that previously made the program less accessible to larger businesses or taxpayers who had previously used the program for a different matter.
Eligibility still requires that the application be voluntary, complete, and involve a genuine error or omission for which interest or penalties have accrued. Applications that relate solely to refunds or situations involving no tax owing are generally not eligible.
Some situations remain excluded, such as applications by taxpayers who are currently under audit or investigation in respect of the information being disclosed, or situations involving egregious or intentional non-compliance.
How Far Back Does the Program Look?
The lookback period depends on the nature of the income or assets involved:
- Canadian-sourced income or assets: most recent 6 years
- Foreign-sourced income or assets: most recent 10 years
- GST/HST-related matters: most recent 4 years
For taxpayers with unreported foreign income or undisclosed foreign assets, such as offshore bank accounts, foreign real estate, or foreign investment accounts, the 10-year lookback is significant. The penalties for failing to file Form T1135, Foreign Income Verification Statement, can be substantial, and the VDP offers a structured way to address those omissions in an orderly and less costly manner.
Common Situations Where the VDP Can Help
The following are examples of situations that may be eligible for relief under the program:
- Failure to report income from a prior year (employment, business, rental, investment)
- Unreported foreign income, including dividends, interest, or rental income from property outside Canada
- Failure to file Form T1135 (Foreign Income Verification Statement) for years in which specified foreign property exceeded the $100,000 cost threshold
- Undisclosed foreign bank accounts or foreign investment accounts
- Missed tax return filings for one or more prior years
- GST/HST amounts that were not charged, collected, or remitted as required
The Anonymous Pre-Disclosure Discussion
One feature of the updated program that is particularly useful for taxpayers who are uncertain whether the VDP is appropriate for their situation is the pre-disclosure discussion.
This is a free, informal, no-obligation conversation with the CRA that can be held anonymously before any formal application is made. The purpose is to allow a taxpayer (or their representative) to describe the general nature of the issue and understand whether the VDP may apply, without committing to anything or identifying themselves to the CRA.
For many clients, this step alone removes significant uncertainty and makes the decision to come forward considerably less daunting.
For taxpayers who are aware of an unresolved tax issue but have not yet addressed it, the passage of time works against them in several ways. CRA interest on overdue amounts compounds daily. The longer a matter remains unaddressed, the greater the likelihood that the CRA identifies it independently, which would either preclude access to the VDP entirely (if the taxpayer is under audit) or reduce the available relief to the prompted rate.
Coming forward through the VDP while the application can still qualify as unprompted is almost always the better financial outcome. The difference between 75% interest relief and 25% interest relief, or between no penalties and significant penalties, can represent thousands of dollars on even a moderately sized disclosure.
Working With a Tax Professional on a VDP Application
While many straightforward disclosures can be prepared independently, complex situations benefit from professional involvement. A qualified tax advisor can assess whether the VDP is appropriate given the specific facts, prepare the application and required supporting returns, communicate with the CRA on the taxpayer’s behalf, and help manage any follow-up requests or reassessments that may arise.
This is especially true for disclosures involving foreign income or assets, multi-year omissions, cross-border family situations, or corporate and trust structures. In these cases, the issues are often more nuanced, the documentation requirements more extensive, and the stakes generally higher.
A Second Chance, Without Judgment
The updated VDP reflects a deliberate policy decision by the CRA to make voluntary compliance more accessible and more predictable. The two-tier framework is simpler to navigate. The relief can be more generous. The eligibility is broader, and the pre-disclosure discussion allows taxpayers to understand their options before making any commitment.
For taxpayers who have been carrying the weight of an unresolved tax issue, the updated program is worth a careful look. Acting sooner rather than later is strongly advisable.
This article is intended for general informational purposes only and does not constitute tax, legal, or financial advice. Every situation is unique. Readers are encouraged to consult a qualified tax professional for advice specific to their circumstances.