CRA Voluntary Disclosure Program (VDP): A Canadian Tax Lawyer’s Guide to the New Rules Effective October 1, 2025

Voluntary Disclosure Tax Lawyers

At Rotfleisch & Samulovitch P.C., our team of experienced Canadian tax lawyers has successfully guided hundreds of individuals and businesses across Canada and internationally through the Canada Revenue Agency’s Voluntary Disclosures Program (VDP). Our voluntary disclosure practice combines litigation-grade tax law experience with pragmatic tax compliance: we assess exposure, assemble required documentation, negotiate with CRA, and aim to secure the most favourable relief available. Engaging a knowledgeable Canadian tax lawyer early preserves legal privilege and materially improves the chances of a successful outcome.

What is the CRA Voluntary Disclosures Program (VDP)?

The CRA’s Voluntary Disclosures Program allows taxpayers to correct past tax non-compliance and, where accepted, obtain protection from criminal prosecution, relief from gross-negligence penalties, cancellation of other penalties, and a reduction in interest in many cases. The VDP is not a shortcut to avoid taxes: the outstanding taxes must be paid, but the program reduces the additional financial and criminal risks of non-compliance when used correctly.

The CRA substantially revised the VDP framework effective October 1, 2025. The new approach distinguishes between unprompted and prompted disclosures and clarifies documentation and look-back periods. Because the new rules affect eligibility and relief, legal advice from a seasoned Canadian tax lawyer is strongly recommended.

Eligibility Criteria under the New VDP Rules

A disclosure will generally be considered for VDP relief only if it meets core conditions:

• the disclosure is voluntary (made before CRA initiates enforcement or specific tax audit activity regarding the matter);
• the disclosure is complete, with all relevant facts, amounts and affected years disclosed;
• the disclosure concerns an issue that would otherwise attract penalties or interest;
• the filing or payment obligation is at least one year past due; and
• the taxpayer pays the taxes owing or arranges payment.

Partial or incomplete disclosures risk rejection. An early legal review by an experienced Canadian tax lawyer helps ensure that the submission is complete and appropriately framed.

Number of Years of Returns That Must Be Filed

A common practical question is how many years the CRA expects in a VDP submission. Under the updated framework:

• For Canadian-sourced income, the CRA will ordinarily require the most recent six taxation years to be filed or corrected as part of a complete disclosure.
• For matters involving foreign-sourced income or unreported offshore assets, the CRA may require documentation and returns for up to ten years.
• For GST/HST and similar registrant obligations, the CRA’s typical look-back is four years of reporting periods.
• If there is evidence of prolonged or deliberate concealment, the CRA may require additional earlier years beyond these default ranges.

A VDP application must include all outstanding years within the applicable look-back; failure to do so may render the application incomplete and subject to rejection.

Prompted vs. Unprompted Applications

The CRA now treats disclosures as either unprompted or prompted:

• Unprompted: made before CRA has material information or has opened an audit or investigation into the specific issue. Unprompted filings receive the most favourable treatment.
• Prompted: made after CRA has contacted the taxpayer or obtained material information tying the taxpayer to the non-compliance. Prompted filings remain eligible for relief but typically receive less favourable interest treatment.

Determining how the CRA will classify a disclosure can be fact-sensitive; a knowledgeable Canadian tax lawyer should evaluate the communication history with CRA before filing.

Relief Available under the New 2025 Rules

Relief under the VDP is now explicitly tied to the disclosure stream:

• Penalty relief
  • Unprompted applications are normally eligible for 100% cancellation of applicable penalties.
  • Prompted applications may receive up to 100% penalty relief at CRA’s discretion.
• Interest relief
  • Unprompted applications are normally eligible for 75% relief of the applicable interest charged for the included periods.
  • Prompted applications are normally eligible for 25% relief of the applicable interest charged.
• Prosecution protection
  • Accepted disclosures are protected from criminal prosecution for the matters disclosed, and gross-negligence penalties relating to those matters are generally not applied.

Relief is subject to statutory limits and CRA policy, and outcomes remain discretionary; competent legal drafting and full disclosure are essential.

Types of Non-Compliance Addressed by the VDP

The VDP covers a broad set of non-compliance issues, including:

• failure to file income tax returns;
• under-reporting of income (employment, business, rental, investment, cryptocurrency);
• undisclosed offshore accounts, property or entities;
• failure to remit GST/HST or payroll source deductions;
• inaccuracies in information returns (e.g., T1135);
• non-compliance with newer statutory regimes (Underused Housing Tax, Select Luxury Items Tax, Digital Services Tax, Global Minimum Tax reporting).

Because each matter is fact-specific, a seasoned Canadian tax lawyer can identify all relevant obligations and plan a comprehensive submission.

Process of Making a Voluntary Disclosure

A typical VDP engagement follows these stages:

• initial consultation with a Canadian tax lawyer to assess eligibility and classification (prompted vs. unprompted);
• compilation of records and preparation of required returns for all applicable years;
• calculation of tax owing and arranging payment or a payment plan;
• preparation and submission of the formal VDP application (Form RC199 or CRA-directed submission);
• timely responses to CRA requests during review and negotiation of the relief package;
• receipt of CRA’s acceptance and formal confirmation of relief, followed by any necessary revised assessments.

Careful project management and legal oversight reduce the risk of incomplete submissions and adverse outcomes.

Comparison of Old vs. New VDP Rules (Effective October 1, 2025)

Feature	Pre-2025 Approach	Post-Oct-1-2025 Approach
Application streams	General & Limited	Unprompted & Prompted
Penalty relief	Case-dependent	Unprompted: 100%; Prompted: up to 100%
Interest relief	Case-dependent	Unprompted: 75%; Prompted: 25%
Years/returns required	Variable	Generally 6 years (Canadian), 10 years (foreign), 4 years (GST/HST)
Documentation standard	Lower	Higher — full documentation expected

Statutory Limitation: The 10-Year Look-Back

The Minister’s discretion to cancel interest and penalties is subject to statutory limitation principles. In practice, the CRA applies a look-back approach for relief, which means that relief for interest and penalties is effectively constrained by historical limitation rules; for foreign-related matters, the practical look-back can extend to ten years of historical reporting.

Risks of Not Filing a Voluntary Disclosure

Failing to come forward before CRA detection can expose a taxpayer to severe consequences:

• gross-negligence penalties (which can be a substantial percentage of understated tax);
• full arrears interest;
• potential criminal prosecution in serious tax evasion cases.

With enhanced information sharing and analytics, the risk of detection of undisclosed offshore income and holdings and other omissions has increased.

Why Hire an Experienced Canadian Tax Lawyer for VDP Applications?

A lawyer provides legal strategy, negotiation experience, and solicitor-client privilege. An experienced Canadian tax lawyer will:

• ensure the disclosure is complete and strategically framed to secure the best stream (unprompted treatment where feasible);
• coordinate filings for all required years and liaise with CRA;
• protect sensitive communications with privilege; and
• negotiate the relief package and address follow-up CRA inquiries.

Accountants remain essential for calculations, but legal counsel is critical for legal strategy and privilege.

Pro Tax Tips

• Disclose early: unprompted disclosures typically attract the most favourable interest and penalty treatment (75% interest relief);
• Include all relevant years: omission can invalidate a submission;
• Consult counsel first: initial discussions with a knowledgeable Canadian tax lawyer preserve privilege and allow strategic planning;
• Prepare financially: taxes owing must be paid or secured under an arrangement.

FAQs

Who can apply for the CRA’s Voluntary Disclosures Program?

Any individual, corporation, trust or partnership with prior non-compliance may apply provided the disclosure is voluntary, complete and meets CRA criteria.

Can I file anonymously under the Voluntary Disclosures Program?

No. The CRA does not accept a truly anonymous formal VDP application. Taxpayers or their representatives may hold general, no-name discussions with the CRA at a preliminary stage to explore eligibility and process, but those conversations do not constitute a formal anonymous filing. Once a formal VDP submission is made, the taxpayer’s full identity and supporting documentation must be provided.

What happens if the CRA rejects my disclosure?

If rejected, penalties, interest and potential prosecution may follow. Professional legal preparation materially reduces the risk of rejection.

How long will CRA take to review my disclosure?

Timelines vary by complexity. Simple matters can be resolved in a few months; complex offshore cases may extend longer. Prompt, accurate responses to CRA requests hasten resolution.

Disclaimer: This article provides general information and is accurate as of the posting date. It is not legal advice and should not be relied upon as tax advice. Every tax situation is unique and requires tailored legal analysis. If you have specific questions, seek the advice of an experienced Canadian tax lawyer at Rotfleisch & Samulovitch P.C.