CVITP Assist: Voluntary Disclosures Program

HomeUpdated to 2025 tax year

VOLUNTARY DISCLOSURES PROGRAM

Introduction:

A failure to comply with the Income Tax Act or Excise Tax Act can result in penalties, interest, and in rare cases even criminal prosecution.^[1] By voluntarily disclosing non-compliance before the CRA investigates, a taxpayer will avoid any potential prosecution, penalties can be reduced by up 100%, and interest can be reduced by up to 75%. The VDP is intended to encourage taxpayers to make a disclosure of non-compliance on their own initiative.

If non-compliance is instead discovered by audit or investigation, a taxpayer is more exposed to penalties, interest and prosecution.

If non-compliance relates to a filed tax return, the normal reassessment period is three years from issuance of the Notice of Assessment. Once that period has expired, the CRA cannot simply reassess because it discovers an error. Instead, the CRA needs to establish a misrepresentation attributable to neglect, carelessness or wilful default, or fraud. Therefore a VDP application may not make sense for older returns if the individual is confident that the CRA could not establish negligence, carelessness, wilful default or fraud. If, on the other hand, a taxpayer has not filed a return, the CRA has no time limitations.

Relief is discretionary, arising out of short sections of the ITA and ETA that expressly permit the CRA to waive or cancel penalties or interest.^[2]

The program underwent significant changes in October 2025. This document reflects those changes. The CRA describes the program in two main documents:

For VDP applications under the Income Tax Act: IC00-IR7
For VDP applications under the Excise Tax Act (and some others): Memorandum 16-5-1

When an application is received, the CRA assesses two fundamental questions before granting relief:

Does the person meet the conditions to qualify for relief?
Was the application prompted or unprompted?

Extent of relief depends on whether VDP application was prompted or not:

Whether prompted or umprompted, a qualified application will result in protection from prosecution and gross negligence penalties.

For an unprompted application, penalty relief will be 100% and interest will be reduced by 75%.

For a prompted application, penalty relief wil be up to 100% at CRA’s discretion, and interest will be reduced by only 25%.

What conditions must be met to qualify for relief?

The conditions are as follows:

No audit or investigation has been initiated in respect to the non-compliance being disclosed.^[3]
The application relates to a tax year that is at least one year past the due date for filing. For example, a return for the 2024 tax year for a self-employed individual is due on June 15, 2025. An application cannot be submitted for 2024 before June 16, 2026.
Each of the tax years included in the application must disclose an error or omission that gives rise to interest or penalties. If, for example, self-employment income was not disclosed but no tax is owing for that year (inclusive of CPP contributions), that tax year should not be included.
The application discloses all past errors and omissions know to the individual.^[4]
The application includes all supporting documentation (for example, returns, forms, statements, schedules) needed to correct the non-compliance for a minimum of the most recent 6 years (or 4 years for HST).

For example, lets say an application is submitted on June 16, 2026. The six year window is 2024, 2023, 2022, 2021, 2020 and 2019. If the individual knew of errors for the tax years 2018, 2022 and 2023, they would advise the CRA of the errors for all three of these years, but they would only need to provide supporting documentation for 2022 and 2023. Optionally, supporting documentation could be provided for 2018. If not provided, the CRA could request the 2018 documentation later in the process.^[5]

The application must include payment of the tax owing, or alternatively a request for a payment arrangement. There is a box to check if a payment arrangement is being requested.

Is the application unprompted or prompted?

An application is unprompted if made where there has been no verbal or written communication to the individual about an identified compliance issue related to the disclosure.

An education letter or notice that offers general guidance and filing information related to a particular topic will not render an application prompted.

A prompted application is made where there has been a 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
a deadline to correct an error or omission, where there is an expectation for the taxpayer to file or comply

A system-generated notice advising that a tax return or HST return is overdue, or a specific ‘request to file’ letter, would likely render an application prompted.^[6]

Note that the application form does not ask the applicant to advise if the application is prompted or unprompted. Instead a determination is made by CRA based on its review of the facts, including any relevant communications from the CRA.^[7]

The ‘mail’ section of a CRA account does not necessarily disclose all mail sent by the CRA to an individual. Hardcopies could have been sent without a copy appearing online. If an individual is unsure what letters they’ve received from the CRA in the past, or what phone conversations they’ve had in the past, then you can’t know in advance what determination the CRA will make.

How is an application submitted?

A VDP application can be submitted by mail, fax, or via a CRA account (individual or business as applicable).

What happens after the CRA receives the application?

IC00-1R7 sets no formal service standard, and the CRA does not publish average processing times. Acknowledgement of receipt and an EDD (Effective Date of Disclosure) will typically be communicated within a few weeks. The time it takes to fully process an application is variable and depends in part on complexity and whether the CRA requests additional information from the applicant.^[8]

What are the main potential penalties that can be avoided?

For ITA returns:

For filing a return late: 5% of the tax due, plus an additional 1% for each full month that the return is filed after the due date to a maximum of 12 months (the maximum penalty is 5% + 12% = 17%).^[9]
For failure to report an amount of income of $500 or more if you also failed to do so in any of the three preceding tax years: The lesser of 10% of the unreported income and 50% of the tax attributable to the omission.^[10]
For knowingly, or under circumstances amounting to gross negligence, making a false statement or omission on your return, sometimes referred to as the “gross negligence penalty”: The greater of $100 and 50% of the understated tax or the overstated credits (or both) related to the false statement or omission.^[11]

For HST returns:

For filing a return late: 1% of the unpaid amount, plus 0.25% per month to a maximum of 12 months. This works out to a maximum penalty of 4%.^[12]
For knowingly, or under circumstances amounting to gross negligence, making a false statement or omission on your return: The greater of $250 and 25% of the understated or overstated amount.^[13]
For failing to file a return after receiving a formal demand: $250.^[14]

What is the interest that can be reduced?

Under both the Income Tax Act and Excise Tax Act:

Interest on overdue amounts is payable at a prescribed rate.^[15] The interest also applies to overdue penalty payments.^[16]
A quarterly rate is prescribed that is related to the average yield of Government of Canada three-month Treasury Bills, plus 4%.^[17] Interest is compounded daily.^[18]
The CRA maintains a webpage reporting current and historical interest rates.

Can an individual also apply for Taxpayer Relief?

After the VDP application process is fully completed, an individual can still apply for Taxpayer Relief to request further relief. The program for Taxpayer Relief is different than the VDP. Under Taxpayer Relief penalties and interest might be waived if a person can establish that they are unable to pay what is owed due to finanical hardship.

References:

[1] Some particular acts or omissions under the ITA and ETA are summary or indictable offences, including tax evasion. The Criminal Code applies to summary and indictable offences under other Acts, which would include the ITA and ETA.

[2] Income Tax Act, s.220(3.1); Excise Tax Act, s.88(1), s.281.1, s.284, s.284.1(3),

[3] It is clear what an audit is since this is explained in the CRA’s audit manual. “Investigation” is not defined. But IC00-IR7 states that audits or investigations are not limited to those conducted by the CRA. They can also be conducted by a law enforcement agency, securities commission, or other federally or provincially regulated authority. Since such other agencies may not use the word “audit” it makes sense that IC00-IRy refers to investigations.

[4] This is not entirely clear from IC00-1R7 itself. However, this was communicated by the CRA in a webinar held on June 18, 2026. See Questions 2 and 14 of the pdf.

[5] See CRA’s webinar responses held on June 18, 2026, questions 14 and 19 of the pdf.

[6] This was communicated by the CRA in a webinar held on June 18, 2026. See Questions 8 and 20 of the pdf.

[7] This was communicated by the CRA in a webinar held on June 18, 2026. See Question 18 of the pdf.

[8] See paragraphs 31 to 34 of IC00-IR7 and the webinar pdf, Questions 9 and 11.

[9] Income Tax Act, s.162(1). The penalty can be higher for a repeat late filer - see s.162(1.1).

[10] Income Tax Act, s.163(1)

[11] Income Tax Act, s. 163(2)

[12] Excise Tax Act, s.280.1

[13] Excise Tax Act, s.285

[14] Excise Tax Act, s.283

[15] Income Tax Act, s.161(1); Excise Tax Act, s.280(1)

[16] Income Tax Act, s.161(11); Excise Tax Act, s.280(1)

[17] Income Tax Act Regulations, s.4301

[18] Income Tax Act, s.248(11). Excise Tax Act, s.124(1) and s.280(4.1). The effect of daily compounding only becomes pronouned if a debt is unpaid over multiple years.