Changes to CRA’s Voluntary Disclosure Program for GST/HST and other taxes

On September 10, 2025, the Canada Revenue Agency (CRA) announced changes to its voluntary disclosures program (VDP) that will apply with respect to VDP applications that are submitted after September 30, 2025.  It is expected that these changes will encourage more taxpayers to come forward under the VDP to rectify their past errors.  The program that applies until September 30, 2025 has been criticized for being too restrictive, and many businesses, especially large businesses, have been reluctant to make a disclosure under the VDP.  

The new program, as explained in GST/HST Memorandum 16-5-1, provides greater clarity on when a voluntary disclosure can be made and the CRA has enhanced the benefits that can be obtained from making a disclosure by increasing the amount of interest relief for certain types of disclosures.  The new VDP will apply with respect to voluntary disclosures that are initiated with respect to GST/HST and excise tax matters, excise duties that are imposed under the Excise Act, 2001, luxury taxes levied under the Select Luxury Items Tax Act and various other taxes (other than income tax) that are administered by the CRA.

General objective of VDPs

Taxation statutes in Canada are premised on the principle of voluntary self-compliance where taxpayers are expected to accurately account for and report their tax liabilities.  To ensure that taxpayers are satisfying their tax obligations, taxation authorities, like the CRA, have broad audit and enforcement powers.  When these authorities detect non-compliance, the taxpayer is generally required to pay its tax liability plus interest and penalties, which can be significant in certain circumstances.

Many taxation statutes, such as Part IX of the Excise Tax Act, do not require a taxpayer to make a disclosure when they discover past errors.  However, when a taxpayer believes that they have a resulting tax liability, initiating a voluntary disclosure is often the best path forward to becoming compliant.  When the tax authorities accept a VDP the tax authority may reduce the amount of penalties and interest that would otherwise be payable by the taxpayer.

VDPs intend to encourage taxpayers that have failed to comply with their obligations and have a resulting tax liability to rectify their situation.  Although the resulting tax liability must be paid, by initiating a disclosure, the taxpayer will not be treated as harshly as it would when non-compliance is detected on audit.  Depending on the situation, the CRA may not levy any penalties on a disclosure and the amount of interest that is otherwise payable may be relieved by 75% for an “unprompted application”, 25% for a “prompted application” and 100% for a “wash transaction”.

Important Changes to the CRA’s VDP  

The changes to the VDP are fairly significant and should ultimately result in more voluntary disclosures being initiated.  Some of the fundamental and important changes to the VDP include:

1. Disclosures are no longer being classified as Category 1: wash transactions; Category 2: General Program; and Category 3: Limited Program which, in the past, resulted in some taxpayers (e.g. “large businesses”) being reluctant to initiate a voluntary disclosure as the CRA provided no interest relief with respect to a “Category 3” disclosure.
2. By virtue of the CRA enhancing the amount of interest that will be relieved on a particular type of disclosure, the following categories will apply depending on whether the disclosure was “prompted” by CRA communication; “unprompted” by CRA communication or involved a “wash transaction”, with the interest and penalty relief being as follows:
   • Unprompted applications are normally eligible for general relief and will receive 75% relief of the applicable interest and 100% relief of the applicable penalties.
   • Prompted applications are normally eligible for partial relief and will receive 25% relief of the applicable interest and up to 100% relief of the applicable penalties (thus suggesting that some level of penalties may still apply).
   • Wash transactions within a VDP application will receive 100% relief of the applicable penalties and interest where the transaction would be eligible for a reduction of penalty and interest under the policy set out in GST/HST Memorandum 16-3-1.

3. Clarification on the number of years that should be included in a disclosure, with the CRA stating that supporting documentation that is “needed to correct the non-compliance for the most recent four (4) years must be included” and that documentation beyond four years “may be requested by the CRA at its discretion”; whereas, the CRA had previously stated that a four year period applied only to disclosures under Categories 1 and 2, with Category 3 disclosures requiring disclosure of “all relevant years”.
4. Allowing a taxpayer to make a second voluntary disclosure, provided it relates to a “different matter than a previous application” or involved a circumstance beyond the taxpayer’s control; whereas, the CRA had previously stated that a taxpayer “is generally entitled to obtain the benefits of the VDP only once.” This resulted in most taxpayers not wanting to use the VDP unless the amounts involved were material.
5. Clarification (and potential relaxation) on what is considered to be an “enforcement action,” which would preclude someone from the VDP, with the CRA confirming that an “educational letter or notice that offers general guidance and filing information related to a particular topic” is not an enforcement action.  Under the new program, this type of communication allows the disclosure to be an “unprompted disclosure.”
6. The following types of CRA communication would result in the disclosure being a “prompted disclosure”:
   1. an application is made following verbal or written communication about an identified compliance issue related to the disclosure, which may include letters or notices (excluding education letters) to the person with one or more of the following:
      • an identification of a specific error or omission found on the person’s account; and
      • a deadline to correct an error or omission, where there is an expectation for the person to file or comply;
   2. an application is made after the CRA has already received information from third party sources regarding the potential involvement of a specific person (or of a related person) in tax non-compliance.

Concluding Comments

The changes that the CRA has made to its VDP should increase the number of disclosures that are initiated as the CRA has (i) enhanced the amount of interest relief that is available particularly for large businesses; (ii) removed the condition that the program may only be used once; and (iii) provided greater clarity and comfort on when a disclosure can be made.  That said, we are hopeful that the CRA will issue additional guidelines that will:

1. further clarify when a person will be precluded from initiating a voluntary disclosure on the basis that  “audit or investigation has been initiated against the person or a related person in respect of the information being disclosed” as the CRA’s current policy required the enforcement action to be sufficiently related to disclosure such that it would “likely to have uncovered the information being disclosed”.
2. provide taxpayers more definitive guidance on the penalty relief that will be provided on a “prompted disclosure” since the CRA has merely stated that it will provide “up to 100% relief of applicable penalties”, thus suggesting that some penalties may still be payable.
3. Further clarify what differentiates a “prompted disclosure” from an “unprompted disclosure” and, in particular, what constitutes an “identified compliance issue related to the disclosure.” In particular, what degree of correlation between the compliance issue and the matters being disclosed must be present to push a VDP into the “prompted” category.

Hopefully, taxpayers wanting to initiate a voluntary disclosure can obtain further clarification on how the CRA will handle their particular disclosure through the “pre-disclosure discussion process”; however, in most situations, we have found that these discussions have not provided sufficient comfort to most taxpayers.

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Brent Murray, PwC Law LLP, and Andrew Azmudeh, Partner, PwC Law LLP