The Adjusting Entries
All articles
HomeArticlesAboutContact
Tax

The Voluntary Disclosures Program reset: correct tax errors before CRA finds them

GM Gurjot Mann, CPA  ·  Jun 21, 2026  ·  9 min read

A client calls you in a panic. They missed filing T2s for two years, they had income they never reported, or their GST/HST account is a mess going back three years. The question is always the same: can we fix this before CRA comes looking?

The answer, in many cases, is yes. And as of October 1, 2025, that answer got a lot better.

The CRA overhauled its Voluntary Disclosures Program under Information Circular IC00-1R7, effective for all applications received on or after that date. The new framework is more accessible, more generous on interest relief, and simpler to navigate. Then, in June 2026, the CRA clarified exactly how it applies the new rules in practice during a national webcast with STEP Canada.

What is the Voluntary Disclosures Program?

The Voluntary Disclosures Program (VDP) lets taxpayers report past errors or omissions in their tax obligations. If the application qualifies, the taxpayer gets penalty and interest relief and will not be referred for criminal prosecution.

The underlying tax still has to be paid in full. The VDP doesn't forgive the tax itself. It relieves the penalties and interest that pile up on top of it.

That might sound limiting. But for a client sitting on unreported income from several years back, or a stack of missed GST/HST filings, the savings on penalties and interest alone can be meaningful.

What changed on October 1, 2025

IC00-1R7 replaced the prior framework and introduced a simpler, more accessible program. Here are the key changes.

Two tracks, two relief levels

The new program runs on two tracks based on one question: has the CRA already been in touch with this taxpayer about this specific issue?

If the answer is no, if the taxpayer is coming forward entirely on their own, the application is unprompted. That's the higher track. The taxpayer gets 100% relief on applicable penalties and 75% relief on applicable interest.

If the CRA has already made contact about the specific issue, through a letter identifying an error, a notice with a deadline to correct, or contact triggered by information from a third party, the application is prompted. Relief is lower: up to 100% penalty relief and 25% interest relief.

Both tracks protect the taxpayer from criminal prosecution, and gross negligence penalties do not apply in either case.

The most important change from the old program: under IC00-1R6, prompted applications were typically blocked entirely. They weren't considered voluntary, so they weren't eligible. Under IC00-1R7, a prompted application still qualifies. The relief is reduced, but the window is open.

The gross revenue barrier is gone

Under the old program, corporations with gross revenue exceeding $250 million in any of the prior four tax years were limited to the "Limited Program." That track offered penalty relief but no interest relief at all.

IC00-1R7 removes that threshold. Corporate revenue is no longer a factor. All corporations can now access the full range of relief based on whether their application is unprompted or prompted.

Simplified form and easier payment arrangements

Applications now use a single form: Form RC199. The prior program required different forms depending on the type of disclosure.

Payment arrangements have also been streamlined. Under IC00-1R6, a taxpayer seeking a payment arrangement had to provide documentation of income, expenses, assets, and liabilities, and in some cases offer security. That requirement is gone. Taxpayers can now request a payment arrangement without supporting their inability to pay in full.

The one thing that hasn't changed is that the VDP only covers tax years at least one year past the due date for filing. You can't use it to correct a current-year return that isn't overdue yet.

Is your disclosure actually voluntary?

This is where most of the complexity sits, and where the June 2026 CRA commentary adds practical value.

What blocks a VDP application

A VDP application is not considered voluntary if the CRA has already initiated an audit or investigation against the taxpayer in respect of the issue being disclosed.

An "audit" is a formal review carried out by a CRA auditor. An "investigation" covers other active compliance work by CRA on a specific issue concerning a specific taxpayer.

Other contacts from CRA, including awareness letters, reminder notices, and broad educational mailings, do not disqualify an application.

The dividing line is between general informational contact, which doesn't affect the VDP, and targeted compliance activity directed at the specific taxpayer and the specific issue, which can close the window on that issue.

Voluntariness is issue-specific

Voluntariness is assessed issue by issue, not at the taxpayer level. A CRA audit on one issue does not automatically disqualify a VDP application for an unrelated issue.

The CRA used this example directly: a taxpayer is under audit for unreported Canadian employment income. That audit doesn't block them from making a valid VDP application for an unfiled T1135, Foreign Income Verification Statement, related to a separate foreign account. The two issues are unrelated. The VDP window stays open on the T1135.

In practice, the VDP agent will contact the relevant auditor to assess whether there's a meaningful link between the audit and the VDP application. Where there's no connection, the VDP proceeds.

This is useful for clients who are already under review for one thing but have a separate issue sitting unresolved.

What about a demand to file?

Under the old program, a CRA demand to file under subsection 150(2) of the Income Tax Act was listed as something that made a disclosure non-voluntary. It blocked the application entirely.

Under IC00-1R7, a demand to file related to a specific issue typically makes the application prompted but not blocked. The taxpayer goes to the lower relief track (25% interest, up to 100% penalties), but the VDP window stays open.

A client who received a demand to file and is sitting on an unfiled return can still apply. They won't get the 75% interest relief. But 25% is better than nothing, and they still avoid criminal prosecution and gross negligence penalties.

Unprompted vs. prompted: what relief looks like

Unprompted, general relief

Prompted, partial relief

All underlying taxes must be paid in full in both cases.

When you would actually use the VDP

The VDP covers income tax, GST/HST, withholding taxes, payroll remittances, and several other tax types. Here are the most common scenarios in practice.

Unreported income

A client ran a cash business and didn't report some revenue. Or they have offshore investments that earned income never declared on a T1 or T2.

The VDP is built for this. The taxpayer files corrected returns and includes documentation for the most recent six years (Canadian income) or ten years (offshore income or assets). The timing pressure is real. If CRA has announced a compliance campaign targeting the industry or asset type, act quickly when a client finds something like this.

Missed T2 filings

A corporation filed for a few years, then stopped. Returns are outstanding. Penalties are building.

As long as the CRA hasn't taken active steps against the specific corporation, an audit, a demand on those specific years, or a review triggered by a related file, the application is likely unprompted. The six-year lookback applies. Include all unfiled years within the window.

GST/HST errors

Overclaimed ITCs, underreported taxable supplies, and periods where filings were skipped are all VDP-eligible.

GST/HST applications use a shorter lookback: four years, not six. And for "wash transactions," HST amounts that would net to zero between registrants, 100% relief on both penalties and interest is available.

Payroll gaps

A client didn't remit source deductions for a period, or paid employees and never filed the T4s.

Payroll non-compliance carries steep penalties and can result in personal director liability. Getting ahead of CRA is especially important here. Once CRA initiates a compliance review on a payroll account, the VDP window closes on that specific issue.

Timing is everything

The amount of relief available decreases the longer you wait.

Acting before any CRA contact on the issue means the application is unprompted. That's the highest relief: 100% penalty forgiveness and 75% interest forgiveness.

Once CRA contacts the taxpayer specifically about the issue, the application becomes prompted. Interest relief drops to 25%.

Once CRA initiates an audit or investigation on that specific issue, the VDP window on it is closed.

The June 2026 CRA commentary was direct on this point: taxpayers who receive specific CRA contact about a matter should speak with their representative quickly. The window may still be open, but it may not stay open for long.

For clients who come to you before any CRA contact: act now. The window is wide open, and every month that passes is another month of interest accruing at full rates.

The bottom line

The VDP reset made Canada's voluntary compliance framework more accessible and more forgiving than it's been in years. But it's still time-sensitive, and the voluntariness analysis is nuanced. Understanding the prompted and unprompted distinction, and the June 2026 clarity on issue-specific voluntariness, can mean the difference between maximum relief and a much smaller outcome.

If you have clients sitting on past compliance gaps, the window is open. They owe the tax either way. The question is whether they end up paying the penalties and interest too.

Stay current on tax and accounting developments for Canadian practitioners. New posts go up regularly, and there's always something your clients need to know before CRA gets there first.

← Back to all articles