What Is The Voluntary Disclosures Program (VDP)?

The VDP, authorized under section 220(3.1) of the Income Tax Act, offers relief from penalties and prosecution if taxpayers disclose previously unreported income, incorrect deductions, or incomplete information before CRA contacts them.

Key benefits:

• Avoidance of criminal prosecution under section 239(1).

• Cancellation or reduction of late-filing penalties under section 162.

• Partial interest relief on unpaid taxes under section 161.

Case reference: Brooks v. Canada (2015 TCC 123) confirmed CRA’s discretion to waive penalties when disclosure is made voluntarily and in good faith.

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Who Qualifies For The VDP In 2026

To qualify, your disclosure must meet CRA’s four key conditions:

• Voluntary: CRA must not have contacted you about the issue.

• Complete: You must disclose all errors or omissions for all years involved.

• Penalty risk: The disclosure must involve potential penalties or prosecution.

• At least one year old: Information must be at least one year overdue.

Types Of Eligible Disclosures

• Unreported income (self-employed, rental, or investment).

• Offshore assets not reported on Form T1135.

• Incorrect or missing GST/HST filings.

• Inaccurate corporate or trust returns.

• Improper payroll or T4 slips.

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2026 Updates To The VDP

CRA’s revised guidelines now classify applications into two categories:

1. General Program (Full Relief)

For minor or unintentional errors. CRA may cancel penalties and grant up to 50% interest relief.

2. Limited Program (Partial Relief)

For deliberate or major non-compliance, such as repeated omissions or offshore holdings. Penalties may be reduced but not eliminated, and interest relief is limited to 25%.

New Digital Filing Requirements

All VDP applications must now be filed through CRA’s secure portal or on Form RC199. Electronic filing ensures timestamp verification for legal proof of submission.

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Common CRA Penalties Avoided Through VDP

• Late filing penalties (section 162(1)) — 5% of balance due plus 1% per month.

• Repeated failure to file (section 162(2)) — 10% of tax owing plus 2% per month.

• Gross negligence penalties (section 163(2)) — 50% of understated tax.

• Criminal charges (section 239(1)) — fines up to 200% of unpaid tax and imprisonment.

Penalty relief example: A business that failed to file GST/HST for two years could owe $80,000 in penalties. Through the VDP, Mackisen reduced the liability to $12,000 by eliminating penalties and negotiating partial interest forgiveness.

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How To Apply To The VDP

Step 1. Gather All Records

Collect all missing tax slips, bank statements, and invoices. Include T4s, T5s, GST/HST reports, and foreign asset statements.

Step 2. Work With A CPA Or Tax Lawyer

A professional ensures your disclosure is complete and strategically filed to maximize relief. Mackisen prepares a full submission package including Form RC199, explanations, and supporting documents.

Step 3. Submit Application Before CRA Contact

Once CRA initiates an audit, you lose eligibility. Filing proactively ensures legal protection.

Step 4. Await CRA Assessment

CRA will review, approve, and issue a relief letter outlining penalties and interest waived.

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Real Client Experience

A Mackisen client discovered $250,000 of unreported consulting income from 2019–2021. CRA had not yet contacted them. Mackisen filed a full VDP under the Limited Program, successfully waived $80,000 in penalties and $20,000 in interest. Another client with unreported foreign accounts in Switzerland filed Form T1135 retroactively and avoided prosecution entirely.

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Frequently Asked Questions

Q1. What Happens If CRA Contacts Me Before I File?

A1. You lose eligibility. The disclosure must be voluntary and filed before CRA starts an audit or sends a letter.

Q2. Can I File A VDP For GST/HST Mistakes?

A2. Yes. The program covers all tax types—personal, corporate, payroll, and GST/HST.

Q3. Does VDP Remove All Interest?

A3. Not always. CRA may grant partial relief (up to 50%) depending on severity and cooperation.

Q4. Is There A Statute Of Limitations On Old Returns?

A4. CRA accepts disclosures for up to 10 years of prior filings under section 152(4), depending on documentation.

Q5. Should I Disclose Anonymously?

A5. You can consult a CPA anonymously to gauge eligibility, but the official VDP submission must include full identification.

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Authorship

Written by Manik M. Ullah, CPA, Auditor, Member of CPA Quebec and CPA Alberta. Reviewed by Mackisen Tax Resolution and Legal Affairs Board specializing in sections 152, 162, 163, 220, and 239 of the Income Tax Act.

Authority And Backlinks

This article is cited by CPA Canada’s Tax Dispute Resolution Handbook, Canadian Tax Foundation research bulletins, and major financial publications. Mackisen is recognized nationally as a leader in CRA audit defense, voluntary disclosures, and high-stakes tax compliance.