Summary of the CRA’s Changes to the Voluntary Disclosures Program under the Income Tax Act
The CRA has issued IC00-1R7 – Voluntary Disclosures Program (“IC00-1R7”), introducing several changes to the Voluntary Disclosures Program (“VDP”). Applications received on or after October 1, 2025 will be assessed under IC00-1R7, while those submitted before that date will continue to be evaluated under IC00-1R6 – Voluntary Disclosures Program (“IC00-1R6”).
Broadened Determination of Voluntariness
Both IC00-1R7 and IC00-1R6 state that a VDP application must be “voluntary” in order to be granted relief. IC00-1R7 broadens the determination of voluntariness compared to IC00-1R6. Under IC00-1R7, applications submitted after a taxpayer has been prompted to disclose information may now qualify as voluntary and be eligible for relief, whereas under IC00-1R6, such applications may not have qualified as voluntary.
However, under IC00-1R7, taxpayers who are under audit or investigation, or who have engaged in egregious non-compliance, remain ineligible for relief on the basis of voluntariness.
Types of Applications
Under IC00-1R7, the CRA allows taxpayers to apply to the Voluntary Disclosures Program even after being “prompted.” However, the level of available relief differs between prompted and unprompted disclosures. The first step in the relief analysis is to determine whether the disclosure is prompted or unprompted.
Prompted Application
A prompted application is one made following verbal or written communication about an identified compliance issue related to the disclosure, which may include letters or notices (excluding education letters) to the taxpayer with one or more of the following:
– an identification of a specific error or omission found on the taxpayer’s account; and
– a deadline to correct an error or omission, where there is an expectation for the taxpayer to file or comply.
And/or an application made after the CRA has already received information from third party sources regarding the potential involvement of a specific taxpayer (or of a related taxpayer) in tax non-compliance.
Unprompted Application
An unprompted application is made when there has been no communication (verbal or written) about an identified compliance issue related to the disclosure.
An unprompted application is also one made following an education letter or notice that offers general guidance and filing information related to a particular topic
Relief
Section 21 of IC00-1R7 states:
Unprompted applications are normally eligible for general relief and will receive 75% relief of the applicable interest and 100% relief of the applicable penalties.
Prompted applications are normally eligible for partial relief and will receive 25% relief of the applicable interest and up to 100% relief of the applicable penalties.
Relief includes from financial penalties which is normally the gross negligence penalty, at the rate 50% of tax owing for income tax.
Both include relief from criminal prosecution.
Documents to Include
IC00-1R7 introduces updated requirements for supporting documentation not previously included in IC00-1R6. Sections 26 to 28 of IC00-1R7 provide as follows:
- The taxpayer must disclose all known errors and omissions in its tax obligations, including any arm’s length and non-arm’s length transactions or circumstances relating to the errors and omissions;
- Supporting documentation (for example, returns, forms, statements, schedules) needed to correct the noncompliance for the most recent six (6) years must be included with the application. However, if the errors or omissions relate to assets or income that are located outside Canada, documentation for the most recent ten (10) years must be included; and
- A tax year within the above timeframes with no errors or omissions does not need to be included with the application. Additional documentation for tax years beyond the above timeframes may be requested by the CRA at its discretion.
Conclusion
In short, the VDP is a very reasonable opportunity for Canadians to correct non-compliance with tax law and in most cases just have to pay the tax and some of the interest.
In the past, a voluntary disclosure may have been denied based on a request to file letter from CRA, for example. The new rules allow for applications even if CRA has already contacted the taxpayer regarding the non-compliance. A prompted application, if accepted, is eligible for 100% penalty relief and 25% interest relief. While an unprompted application is eligible for 100% penalty relief and 75% interest relief. Both a generous increase from the previous rules.
The VDP has always been inviting and a reasonable method of avoiding penalties (financial and/or criminal) for breaching tax law. From the perspective of a Tax Lawyer who represents clients that are audited or investigated by CRA, the ability to use the voluntary disclosures program to correct non-compliance, before CRA discovers it, should be appreciated by Canadians.
SpenceDrake Tax Law – Tax Lawyer
Disclaimer
Each article/blog post is only meant to provide general information. It is posted on a specific date. Laws and rules change. Please know that it may be out of date. It is not meant to provide legal advice, and it does not provide legal advice. It cannot be relied on. Every tax situation is unique, and that may mean situations differ from this article/blog. If you have legal questions, please consult a lawyer.