Guide to the CRA Voluntary Disclosures Program

What Is the Voluntary Disclosures Program?

The Voluntary Disclosures Program (VDP) is a program offered by the Canada Revenue Agency (CRA) that gives taxpayers the opportunity to correct inaccurate or incomplete tax filings, or to disclose information they previously failed to report. The program provides an incentive for taxpayers to come clean by offering relief from penalties and, in some cases, reduced interest charges. It also provides protection from criminal prosecution for tax evasion related to the disclosed information.

The VDP applies to all taxes administered by the CRA, including income tax, GST/HST, payroll deductions, and excise duties. It is available to individuals, corporations, trusts, partnerships, and other entities. The program has been in place for many years, though it was significantly reformed in 2018 to introduce a two-track system with different levels of relief.

Why Would You Use the VDP?

There are many reasons why a taxpayer might need to make a voluntary disclosure. Common situations include:

• Unreported foreign income. If you earned income in another country and did not report it on your Canadian tax return.
• Unreported foreign assets. If you failed to file Form T1135 (Foreign Income Verification Statement) for foreign property with a cost exceeding $100,000.
• Unreported domestic income. If you received income (such as rental income, freelance income, or investment income) and did not include it on your return.
• Incorrect deductions or credits. If you claimed deductions or credits you were not entitled to.
• Failure to file tax returns. If you have not filed one or more tax returns.
• GST/HST errors. If you collected GST/HST but did not remit it, or if you claimed input tax credits you were not entitled to.

For newcomers to Canada, the most common VDP situation involves unreported foreign income or assets. Many newcomers are not aware that Canada taxes its residents on worldwide income, meaning all income earned anywhere in the world must be reported to the CRA. Our newcomer tax guide explains Canadian tax residency and filing requirements.

The Two-Track System

Since 2018, the VDP operates under a two-track system: General Program and Limited Program.

General Program

The General Program provides the most relief and is available for disclosures that do not involve intentional tax evasion or deliberate attempts to avoid tax obligations. Under this track:

• Penalties are waived entirely
• Partial interest relief may be granted (interest for years beyond the most recent 10 taxation years may be waived)
• No criminal prosecution for the disclosed amounts

Limited Program

The Limited Program applies when the disclosure involves intentional conduct, such as deliberate tax evasion, or when there are significant amounts of unreported income or assets. Under this track:

• Gross negligence penalties are reduced to the lesser of 5% of the additional tax owing, instead of the standard 50%
• No interest relief is provided
• No criminal prosecution for the disclosed amounts

The CRA determines which track applies based on the circumstances of each case. Factors include whether the taxpayer made active efforts to avoid detection, the amounts involved, the number of years of non-compliance, and the sophistication of the taxpayer.

Eligibility Requirements

To qualify for the VDP, your disclosure must meet all of the following conditions:

1. Voluntary. The disclosure must be made before any enforcement action by the CRA. If the CRA has already contacted you about an audit, investigation, or review related to the information you want to disclose, the application will not qualify. The disclosure must be initiated by the taxpayer, not prompted by CRA action.
2. Complete. You must provide full and accurate information about all amounts, all relevant tax years, and all accounts involved. Partial disclosures are not accepted.
3. Involve a penalty. The disclosure must relate to a situation where a penalty could be applied. If no penalty would apply (for example, if you simply made a math error that does not attract a penalty), the VDP is not the appropriate mechanism.
4. Include information at least one year overdue. The information being disclosed must relate to at least one tax year that is at least one year past due.

How to Apply

Step 1: Gather Your Information

Before applying, gather all relevant documentation. This includes tax returns that need to be amended or filed, supporting documents (such as foreign tax slips, bank statements, and investment records), and calculations of the additional tax owing. The more complete and organized your submission, the smoother the process.

Step 2: Consider Professional Help

Given the complexity and potential financial implications of a VDP application, it is strongly recommended that you work with a qualified tax professional, such as a Chartered Professional Accountant (CPA) or a tax lawyer. A tax professional can help you assess which track your disclosure will fall under, prepare the application, and negotiate with the CRA on your behalf. Our guide to finding an accountant can help you locate a qualified professional.

Step 3: Complete Form RC199

Submit your VDP application using Form RC199 (Voluntary Disclosures Program Application). This form requires you to provide details about your identity, the nature of the disclosure, the tax years involved, and the estimated additional tax owing. You must also include all supporting documentation and any unfiled or amended tax returns.

Step 4: Submit a Pre-Disclosure Discussion (Optional)

If you are unsure whether your situation qualifies for the VDP, you can request a no-name, pre-disclosure discussion with the CRA. This allows you to describe your situation without identifying yourself, and the CRA will provide guidance on whether a VDP application would be appropriate. This is a risk-free way to get an initial assessment before committing to a full disclosure.

Step 5: Pay the Estimated Tax Owing

When submitting your VDP application, the CRA expects you to include payment of the estimated tax owing or to make arrangements for payment. For Limited Program applications, payment in full is generally required at the time of application. For General Program applications, payment arrangements may be more flexible, but prompt payment demonstrates good faith.

Step 6: Wait for CRA Review

After submitting your application, the CRA will review it and determine whether it meets the VDP eligibility requirements. This review can take several months, depending on the complexity of the case and the volume of applications. The CRA may contact you or your representative for additional information during the review process.

What Happens After Acceptance

If your VDP application is accepted, the CRA will reassess your tax returns for the relevant years, including the additional income or corrections. You will receive a Notice of Reassessment showing the additional tax owing (if any), any reduced penalties under the Limited Program, and any interest charges. Once the reassessment is complete and any amounts owing are paid, the matter is considered resolved.

If your application is rejected (for example, because the CRA had already initiated enforcement action), you will be notified, and the disclosure may be treated as a regular correction, subject to full penalties and interest. You may also face the possibility of criminal prosecution in serious cases.

Common Mistakes in VDP Applications

• Incomplete disclosure. Omitting some years, accounts, or income sources will result in rejection. The disclosure must be complete.
• Applying after CRA contact. If the CRA has already sent you a letter about an audit or review, it is too late to make a voluntary disclosure for the matters under review. However, you may still disclose unrelated matters.
• Not including payment. Failing to pay or make arrangements for the estimated tax can weaken your application, particularly under the Limited Program.
• Filing without professional advice. VDP applications are complex, and errors can have serious consequences. Professional guidance is strongly recommended.

VDP and Foreign Reporting Requirements

One of the most common uses of the VDP involves foreign reporting obligations. Canadian residents are required to report foreign income and file forms such as T1135 (Foreign Income Verification Statement) for specified foreign property with a cost exceeding $100,000. Failure to file T1135 can result in penalties of $25 per day, up to $2,500 per year, and gross negligence penalties of up to $12,000 per year.

Newcomers who arrived in Canada with significant foreign assets should review their T1135 obligations carefully. If you have been in Canada for more than a year and have not filed T1135 when required, the VDP may be the best path to come into compliance. For understanding non-resident tax obligations, see our guide to the NR4 slip and our guide to Form T2062.

Time Limits and Statute of Limitations

The CRA generally has a reassessment period of three years from the date of the original Notice of Assessment for most taxpayers (six years for corporations). However, if there is misrepresentation due to neglect, carelessness, or fraud, the CRA can reassess at any time. The VDP allows the CRA to reassess beyond the normal reassessment period for the matters disclosed, which is why complete and honest disclosure is so important.

Alternatives to the VDP

If your situation does not qualify for the VDP, there are other options:

• Taxpayer Relief Provisions. Under the Taxpayer Relief Provisions (formerly the "Fairness Provisions"), you can request cancellation or waiver of penalties and interest for up to 10 years if there are extraordinary circumstances.
• Filing amended returns. For simple errors that do not involve penalties, you can file a T1 Adjustment Request (Form T1-ADJ) to correct your return.
• Filing a Notice of Objection. If you disagree with a CRA assessment, you can file an objection using Form T400A.

Final Thoughts

The CRA Voluntary Disclosures Program is a valuable mechanism for taxpayers who need to correct past errors or omissions. Whether you forgot to report foreign income, missed filing requirements for foreign assets, or made other tax errors, the VDP provides a path to compliance with reduced penalties and protection from prosecution. The key is to act before the CRA contacts you, provide complete and accurate information, and work with a qualified tax professional. Coming forward voluntarily demonstrates good faith and can save you significant money in penalties and interest compared to waiting for the CRA to discover the issue on its own.

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