Is Voluntary Disclosure The Right Move?

🎯 IMPORTANT UPDATE - Good News Coming!

Starting October 1, 2025, the CRA is making the Voluntary Disclosure Program much easier to use and more forgiving. Think of it as the CRA saying 'we want to make it simpler for you to get back on track.'

If you're reading this before October 2025 and thinking about voluntary disclosure, you might want to chat with a tax professional about timing - the new rules are generally much better for small business owners like you.

Here's what's changing in plain English. The CRA is dropping a lot of the complicated rules that made people afraid to use the program, and they're offering better relief from interest and penalties. It's like they're extending a friendlier hand to help you get your ducks in a row.

This article covers both the current rules (if you need to act before October) and what's coming (so you can make informed decisions about timing).

2025 Changes to the VDP Rules

In September 2025, the federal government announced changes to the Voluntary Disclosure Program. Policy changes to the voluntary disclosure program guidelines will come into effect October 1, 2025. The first policy change applied to income tax and source deductions. The changes were outlined in Information Circular IC00-1R7. The second policy change applied to GST/HST disclosures. The changes were laid out in GST/HST Memorandum 16-5-1.

Here is a brief overview of the changes in the two policies that may affect your decision of whether voluntary disclosure is the right move for you:

What’s Changing?

For applications the CRA receives on or after October 1, 2025, the VDP becomes simpler and more forgiving, especially on interest relief.

Which Rules Apply To You?

If your application is received before October 1, 2025, the 2018 rules still apply. On or after October 1, 2025, the new rules apply.

What Does This Mean In Real Life?

If you come forward on your own before CRA contacts you about a specific issue, you’ll usually get more relief. If CRA has already contacted you about a specific problem, you can still get relief ... just a smaller amount.

The CRA is making it easier to get back on track and offering better relief. But timing matters - talk to a tax professional about when to apply.

Income Tax and GST/HST Policy Changes – What's new from Oct 1, 2025
(Reference: IC00‑1R7 and GST/HST Memorandum 16‑5‑1)

1. Simpler Two-Tier Relief System (replaces General/Limited programs)

The CRA is moving to two clear lanes. If you put your hand up before the CRA points to a specific problem on your file, you’re in the “General” lane. That means 100% of the penalties tied to what you disclose are waived, and 75% of the related interest is forgiven. If the CRA has already nudged you about that exact issue, you’re in the “Partial” lane. You can still get up to 100% penalty relief, but interest relief drops to 25%. Either way, if your disclosure is accepted, the CRA won’t refer the disclosed issue for criminal prosecution.

2. Easier to Qualify as 'Voluntary'

In the past, lots of CRA mail could knock you out of the program. For example, education letters won't disqualify you anymore. Only actual audits or investigations in progress make you ineligible. If CRA has contacted you about a specific issue and given you a deadline to fix it, you can still apply. You'll just get prompted relief (which means a smaller interest break)instead of being shut out entirely.

3. Clearer Documentation Requirements

For income tax, focus on the years that actually need fixing.

• If the issue is Canadian‑sourced income or assets, include the most recent six years that have errors.
• If it involves foreign income or assets, include the most recent ten years with errors. Clean years within those windows don’t need to be included. The CRA can still ask for more if they need a fuller picture.
• If your issue is GST/HST, the window is usually four years.

4. Application Mechanics

You’ll file using Form RC199. The CRA says a simplified version will be available starting October 1, 2025. Anonymous 'no‑name' filings still aren’t allowed, but you (or your representative) can have an informal, no‑names pre‑disclosure chat with the CRA to understand how your situation might be handled. And if someone helped you (your bookkeeper, accountant, or a promoter) you’ll need to list them on the form.

5. Important Limits and When There’s No Relief

The VDP is meant to help when tax and/or penalties are actually owing. It won’t grant relief if your disclosure would only lead to a refund, if there’s nothing owing, or if you’re trying to remove penalties or interest that have already been assessed. Also, it isn’t a workaround for intentional or egregious non‑compliance. The program is designed for getting honest mistakes and omissions back on track.

6. Broader Coverage and Special Relief

The program now covers more tax types, including Underused Housing Tax and select Luxury Items Tax. GST/HST 'wash transactions' can get 100% interest and penalty relief. Second applications are now allowed for different issues.

Protect Yourself Against Third Party Civil Penalties

If you are a bookkeeper and suspect that criminal proceedings may be possible if the voluntary disclosure program was not used:

• It is usually recommended that you refer your client to a tax lawyer (one who specializes in this field) before proceeding,
• A lawyer has solicitor-client privileges that an accountant or bookkeeper does not have. Court orders can force an accountant or bookkeeper to client share information.

The lawyer can then engage the services of an accountant or bookkeeper of the client's choice to act as their agent. You should then not be subject to the possibility of third-party civil penalties.

Sidebar: Since 2000, penalties can be imposed by the CRA on third-parties who make false statements or knowingly omit in information from their tax returns. Learn more.

The first submission is of utmost importance, especially in the event the request is denied. This underscores the need for meticulousness and accuracy in your work.

Check out the call out box about the topic of client privilege of a lawyer vs. an accountant. It is worth reading if you are a bookkeeper dealing with tax matters!

The article explains that privilege is different from confidential communications with professional advisors. It explains how you can protect privilege over communications with professional advisors other than your lawyer.

Remember, certain communications (oral and written) with your clients should be "off limits" because it is out of the scope of your relationship and could bring harm to your client if you are forced to share the information with CRA. Refuse to listen to a client if this happens and immediately refer them to a tax lawyer.

More >> See the August 1, 2022 article titled Protecting a taxpayer’s privileges by The Tax Advisor. It is an American publication but Canadian laws are very similar so most of the advice likely holds ... although there could be some differences in Canada.

What's The Difference Between Getting Advice From a Tax Lawyer Vs a Tax Accountant?

When a small business owner in Canada is considering making an application to the CRA's Voluntary Disclosure Program (VDP), I believe it is vitally important to seek expert advice to ensure that the process is handled correctly and efficiently. Deciding whether to consult a tax lawyer or a tax accountant depends on the specific needs and circumstances of your business. Here are some considerations:

1. Privilege and Confidentiality:

• Tax Lawyer: Communications between a client and a tax lawyer are protected by solicitor-client privilege. This means that, except in rare circumstances, any information shared with the lawyer cannot be disclosed without the client’s consent. This legal privilege can be important in cases where sensitive information is involved and the client needs assurance that details of their financial or legal issues will remain confidential.
• Tax Accountant: Generally, accountants do not have the same privilege with their clients. While accountants follow strict confidentiality standards, the information shared with them can be compelled by court orders or other legal mandates in a legal proceeding.

2. Legal Representation and Litigation Support:

• Tax Lawyer: If the voluntary disclosure escalates to legal actions or if there are potential criminal implications, a tax lawyer is qualified to provide legal representation in court. Lawyers can handle disputes, appeals, and litigations that may arise during or after the VDP application process. Tax lawyers can also provide legal advice and ensure that your legal rights are protected throughout the process.
• Tax Accountant: If the case primarily involves correcting errors in filed returns or disclosing unreported income that does not involve legal complexities, a tax accountant might be sufficient. If accountants help ensure all financial aspects are correctly reported and comply with tax laws through your lawyer, then client privilege is maintained. While tax accountants are experts at handling the financial and tax preparation aspects, they are limited when representing clients in court and should probably not do so. Their role is better suited to financial advising and tax compliance.

3. Negotiating with CRA:

• Tax Lawyer: Beyond addressing potential legal issues, tax lawyers can negotiate with the CRA on your behalf and provide a legal interpretation of the tax implications. Lawyers are trained in negotiation and understand the legal boundaries within which they can operate. If there's a need to negotiate terms or penalties with the CRA, a tax lawyer would typically be more equipped to handle these discussions effectively, navigating both the legal and tax complexities. Preparation and review of any legal documents that might be necessary during the disclosure process or subsequent proceedings are better handled by a tax lawyer, given their expertise in legal matters.
• Tax Accountant: Accountants are trained to prepare tax forms and tax returns; lawyers are not. They can work with your tax lawyer to prepare tax documents, calculate taxes owed or refundable, and help comply with tax regulations. Accountants can give non-legal tax opinions but only lawyers can give legally binding tax opinions.

4. Legal Representation:

• Tax Lawyer: Should the situation escalate or if there is a high risk of litigation or penalties, having a tax lawyer ensures that you have legal representation who is familiar with your case right from the start.  If you end up in Tax Court or in Criminal Court, a tax lawyer has been trained in litigation matters whereas a tax accountant has not. A  tax lawyer can provide a more comprehensive risk assessment concerning legal exposure, advice on the implications of disclosing certain information, and help in managing those risks legally.
  
• Tax Accountant: Accountants can give non-legal tax opinions but only lawyers can give legally binding tax opinions.
  

5. Cost:

• Consulting a tax lawyer generally tends to be more expensive compared to hiring an accountant. However, the investment might be worthwhile if legal issues are at play or if the stakes are particularly high in terms of potential penalties.

6. Preventive Advice:

• Tax Lawyer: Offers comprehensive protection by advising on the legal implications and future preventive measures.
• Tax Accountant: Focuses more on financial advice, ensuring that future filings are correct while helping set up systems to avoid similar issues.

In summary, if the issue involves simple errors or financial adjustments, a tax accountant might be suitable. However, for complex issues, potential legal concerns, or where there may be significant penalties, a tax lawyer would be the better option to protect the business's interests fully. Often, consulting both professionals for their respective expertise can be the most comprehensive approach.

Given these factors, while both tax lawyers and accountants have critical roles to play, I believe the legal privileges and broader legal protections afforded by a tax lawyer can be particularly advantageous in navigating the complexities of the CRA's Voluntary Disclosure Program, especially in scenarios where there is a potential for significant penalties or legal issues.

If you want to learn more check out Moody's April 15, 2021 article Privilege where Legal Advice Rendered by a Law Firm of Collaborating Lawyers and Accountants or the Ottawa Business Journal January 30, 2024 Know your rights: The difference between confidential and privileged information.

Tracing History (For Reference Only)

2018 Changes to the VDP Rules

In March 2018, two administrative policy changes to the voluntary disclosure program guidelines came into effect. The first policy change applied to income tax and source deductions. The changes were outlined in Information Circular IC00-1R6. The second policy change applied to GST/HST disclosures. The changes were laid out GST/HST Memorandum 16-5.

Here is a brief overview of the changes in the two policies that may affect your decision of whether voluntary disclosure is the right move for you:

Income Tax and Source Deductions Policy & Changes

1. Tightened Criteria (Effective 2018):
The criteria for acceptance into the VDP is now more stringent. Full relief from penalties is harder to qualify for, and partial relief is now more common. Take a look at some of the changes:

• File using Form RC199 or an equivalent letter
• Rules around when/if a second application can be filed.
• Must disclose the name of the advisor when making the application.
• Must pay estimated taxes at the time the application is made.
• The option of not providing a name when filing the application is eliminated.
• CRA can cancel the application if the applicant filed incomplete information due to misrepresentation, neglect, willful default or fraud.
• Reduced relief considered in limited program for corporations with gross revenue over $250 million in two of the last five years, offshore accounts, sophisticated taxpayers, and more.
• Restricts who can make an application under the program; exclusions/no relief for:

                  (a) no taxes owing or refunds expects;
                  (b) transfer pricing matters;
                  (c) proceeds of crime disclosures;
                  (d) person in receivership or bankrupt; and
                  (e) applications that require agreement with a competent authority under a tax treaty provision (for example S-corporation agreements).

2. Two Track System:
The VDP now differentiates between applications that involve intentional conduct and those that do not, affecting the relief granted. It moves away from the "one size fits all' program. As a result, there will be two tracks:

• General Program for inadvertent and minor non-compliance with no change in current penalty relief policy and a 50% interest relief may be granted for most recent years; and
• Limited Program where relief is curtailed for major cases of unreported income, including sophisticated taxpayers. They will not be assessed gross negligence penalty and not subject to criminal prosecution; all other penalties assessed will not be forgiven as well as no interest relief. They also waive their objection rights pertaining to taxes assessed. You must meet specific conditions to be accepted. If the CRA has already received potential involvement in non-compliance, your application will be rejected.

3. Limited Periods for Correction:
The program specifies limits on the number of tax years for which correction is possible, generally up to 10 years. 

It's important to note that a Canadian small business owner can still be audited by the CRA even after being accepted into the Voluntary Disclosures Program. Acceptance into the VDP generally provides relief from penalty or prosecution regarding the information disclosed.

However, if the CRA finds inaccuracies or incomplete information within the VDP application itself, or if new information comes to light that requires verification, the CRA still reserves the right to audit the taxpayer. Moreover, the disclosed information might be reviewed for accuracy and completeness, and an audit might be conducted if discrepancies or further issues are detected. See Tax Interpretations 2022 Grewal decision for an example of when this might occur. In this example, the taxpayer disclosed loans under the VDP but not the associated taxable benefits which led to an audit.

Baker Tilly points out in their July 26, 2022 article titled Voluntary Disclosures Program not to be taken lightly that "taxpayers should review their VDP submission carefully to ensure the years in question align with the 10-year statutory period for waiver of interest and penalties. Otherwise, the VDP may not provide the protection sought by the taxpayer."

GST/HST Policy & Changes

Similar to the income tax policy changes, here are key changes to the VDP:

1. Restriction on Eligibility:

• Disclosures must not be primarily related to amounts already known to the CRA or amounts that involve the avoidance of penalties and interest.
• Applications that involve transfer pricing adjustments or those related to large corporations are not eligible for the VDP.

2. Three Tracks for Disclosure:

1. General Program:
   This track covers most disclosures that involve errors or omissions where there was no intentional attempt to avoid taxes. It includes four years before the application filing date with possible 50% interest relief and 100% penalty relief.
   
   
2. Limited Program:
   Designed for more serious breaches where there might have been intentional avoidance or evasion. This track provides less relief compared to the General Program.
   
   Unlike track 1 and 3, it includes all relevant years before the application filing date. There is no interest or penalty relief. However gross negligence penalties will not be assessed even if warranted.
   
   Examples of where this might apply would be collecting but not remitting GST/HST, participating in the underground economy, gross negligence, multiple years of non-compliance.
   
   
3. Wash Transactions Program:
   Specifically designed for situations where a registrant failed to collect or remit GST/HST, but the customer was entitled to claim a full input tax credit (ITC) or where ITCS are wrongly claimed between closely related parties.
   
   This track helps reduce penalties and interest associated with such errors but often involves a notable failure in tax collection and remittance responsibilities. It includes four years before the application filing date.  It may result in full interest and penalty relief. See GST/HST Memorandum 16.3.1, Reduction of Penalty and Interest in Wash Transaction Situations.

3. Pre-Disclosure Discussion: 

• Taxpayers can now engage in anonymous pre-disclosure discussions with the CRA to understand the potential relief available under the VDP. However, full disclosure and identity disclosure must follow for any formal relief to be granted.

4. Payment of Estimated Tax:

• To qualify under the VDP, applicants must include payment of the estimated tax owing or propose a payment arrangement supported by verifiable evidence of payment ability.