Making mistakes on your tax return — whether through oversight, misunderstanding, or deliberate omission — is more common than many Canadians realize. If you have unreported income, unclaimed foreign assets, or errors in past tax filings, the Canada Revenue Agency's (CRA) Voluntary Disclosure Program (VDP) provides a pathway to correct these mistakes with significantly reduced penalties and, in some cases, no penalties at all. At BOMCAS Canada, our Professional Tax Accountants in Edmonton help individuals and businesses across Alberta and all of Canada navigate the VDP process effectively.
This guide explains how the CRA's Voluntary Disclosure Program works, who qualifies, what benefits it offers, and how to make a successful application.
What Is the CRA Voluntary Disclosure Program?
The Voluntary Disclosure Program (VDP) is a CRA initiative that allows taxpayers to come forward and correct inaccurate or incomplete tax information without facing the full consequences they would otherwise face if the CRA discovered the errors first. The program is available for income tax, GST/HST, payroll deductions, and certain other tax obligations.
The fundamental principle of the VDP is that taxpayers who voluntarily disclose errors or omissions before the CRA contacts them are treated more leniently than those whose non-compliance is discovered through an audit or investigation. By coming forward proactively, you demonstrate good faith and can avoid or reduce penalties, and in some cases obtain partial interest relief.
VDP Tracks: General and Limited
Since 2018, the CRA's VDP has two tracks with different levels of relief:
General Program
The General Program provides the most relief and is available for disclosures that do not involve deliberate non-compliance. Under the General Program:
- No penalties are assessed
- Prosecution is not pursued
- Partial interest relief may be granted (the CRA may waive interest for years beyond the three most recent years)
Limited Program
The Limited Program applies when the non-compliance is more serious — for example, when it involved deliberate actions or large amounts. Under the Limited Program:
- No penalties are assessed
- Prosecution is not pursued
- No interest relief is granted (all interest must be paid)
The CRA determines which track applies based on the circumstances of the disclosure, including the amount involved, the duration of non-compliance, and whether the non-compliance was deliberate.
Who Is Eligible for the VDP?
To be eligible for the VDP, your disclosure must meet four conditions:
- Voluntary: The disclosure must be made before the CRA contacts you about the issue. If the CRA has already initiated an audit, investigation, or enforcement action related to the matter you want to disclose, you are not eligible.
- Complete: You must provide full and accurate information about all tax years and all issues you are disclosing. Partial disclosures are not accepted.
- Involves a penalty or potential prosecution: The disclosure must involve information that, if discovered by the CRA, would result in a penalty or prosecution.
- Includes information that is at least one year past due: The disclosure must relate to a tax year or reporting period that is at least one year overdue.
Benefits of Making a VDP Application
The benefits of a successful VDP application can be substantial:
- Penalty relief: All penalties that would otherwise apply are waived under both tracks of the VDP.
- No prosecution: The CRA will not recommend criminal prosecution for the disclosed information.
- Interest relief: Under the General Program, the CRA may waive interest for years beyond the three most recent years, significantly reducing the total amount owing.
- Peace of mind: Correcting past errors allows you to move forward without the risk of a future CRA audit uncovering the same issues with full penalties and interest.
- Certainty: Once your VDP application is accepted, you know exactly what you owe and can plan accordingly.
The VDP Application Process
Making a VDP application requires careful preparation. The process involves:
- Assess your situation: Identify all tax years and issues you need to disclose. A Professional Tax Accountant can help you conduct a thorough review of your tax history.
- Prepare amended returns: For each year being disclosed, prepare corrected tax returns showing the income or information that was previously omitted or incorrectly reported.
- Calculate amounts owing: Determine the additional tax, interest, and any other amounts that will be owing after the disclosure.
- Submit the VDP application: Complete Form RC199 (Voluntary Disclosures Program — Taxpayer Agreement) and submit it along with your amended returns and supporting documentation to the CRA's VDP unit. You can submit anonymously at first to assess the CRA's position before revealing your identity.
- Respond to CRA inquiries: The CRA may request additional information or documentation. Respond promptly and completely.
- Pay the amounts owing: Once your application is accepted, pay the tax and interest owing. Payment arrangements may be available if you cannot pay in full immediately.
What Happens After Your VDP Application?
After submitting your VDP application, the CRA will review it and determine whether it meets the eligibility criteria. If accepted, the CRA will issue a letter confirming the terms of the relief granted and the amounts owing. You must then pay the tax and interest as agreed.
If the CRA determines that your disclosure does not qualify for the VDP (for example, because an audit was already underway), you will be notified and the matter will be handled through normal compliance channels. You can appeal a VDP decision to the CRA's Appeals Division or to the Federal Court.
Common Situations Where VDP Applies
- Unreported foreign income: Income earned in foreign bank accounts, investments, or businesses that was not reported to the CRA.
- Unreported foreign assets: Foreign assets exceeding $100,000 that were not reported on Form T1135 (Foreign Income Verification Statement).
- Unreported cryptocurrency income: Capital gains or business income from cryptocurrency transactions that were not reported.
- Unreported cash income: Cash income from a business or employment that was not included in tax returns.
- GST/HST non-compliance: Failure to register for GST/HST, collect GST/HST, or remit GST/HST collected.
- Payroll deduction errors: Failure to deduct and remit CPP, EI, and income tax from employee wages.
- Errors in prior tax returns: Incorrect deductions, credits, or income reporting that resulted in underpayment of tax.
Frequently Asked Questions
Can I make a VDP application if I am already being audited?
No. If the CRA has already contacted you about the specific issue you want to disclose, you are not eligible for the VDP for that issue. However, if the audit covers only certain years or issues, you may still be eligible for the VDP for other years or issues not covered by the audit.
How far back does the VDP go?
There is no fixed time limit on how far back a VDP disclosure can go, but the disclosure must relate to information that is at least one year past due. In practice, most VDP applications cover the past 3–10 years, depending on the circumstances.
Is the VDP available for GST/HST non-compliance?
Yes. The VDP covers GST/HST obligations, including failure to register, failure to collect, and failure to remit GST/HST. The same eligibility criteria and relief provisions apply.
Get VDP Help from BOMCAS Canada
Making a VDP application is a complex process that requires careful preparation and a thorough understanding of CRA procedures. BOMCAS Canada's Professional Tax Accountants in Edmonton provide expert guidance through every step of the VDP process, from assessing your eligibility to preparing amended returns and negotiating with the CRA. Contact us today for a confidential consultation.
What Happens After VDP Acceptance?
Once the CRA accepts your VDP application, you will receive a letter confirming the terms of the relief granted. You will be required to file all outstanding returns and pay the taxes owing, plus interest (at the prescribed rate) on the unpaid amounts. The CRA will waive penalties and, in most cases, will not pursue criminal prosecution. It is important to comply fully with the terms of the VDP agreement — failing to file the required returns or pay the taxes owing can result in the CRA revoking the relief and reinstating penalties. After completing the VDP process, you should implement proper record-keeping and tax compliance procedures to prevent future issues. BOMCAS Canada's tax specialists can help you navigate the post-VDP compliance requirements and establish systems to ensure you remain fully compliant with the CRA going forward.
