VDP - Check Out the New Tax Form

Ruth Horst

For many years, the Canada Revenue Agency (CRA) has allowed taxpayers to voluntarily disclose errors and omissions on their tax returns, with the opportunity for reduced penalties and interest. There were some restrictions introduced back in 2018. But as of October 1st, 2025, changes to the process make it simpler for taxpayers to disclose unintentional filing errors and omissions, and there is a newly revised tax form to help.

The Changes – According to the most recent news releases by the CRA and the publication of IC00-1R7, the changes to the Voluntary Disclosures Program (VDP) should provide some benefits to a stressful process for many: make certain voluntary requirements easier, offer greater financial relief, and streamline the application process.

Under the new program, “unprompted applications” will be eligible for 75% interest relief and 100% penalty relief, while “prompted applications” will be eligible for 25% interest relief and 100% penalty relief.

A prompted application could happen if the CRA sends a ‘nudge letter’ to a taxpayer. A ‘nudge letter’ or an educational letter is sent by the CRA when they suspect there is unreported income. It’s important to pay attention to this and review filings immediately.

This structured approach replaces the more discretionary framework under the previous version, where the level of relief was largely determined by the CRA agent assigned to the file.

Now, by providing defined tiers of relief, there should be more predictability and transparency for taxpayers seeking to correct past non-compliance.

The Application Process – RC199 is the form that is used to apply to the Voluntary Disclosures Program. If you’re a tax specialist, it is recommended that you take the time to review it.

The new form is significantly simpler and easier for the taxpayer to read and understand. It does require a detailed description of the circumstances that led to the omission of income with supporting documentation including forms, schedules, statements & tax returns, as applicable.

You may be asked to help down the line and for these reasons it is important that you always take meticulous notes in the client interview process during the tax season.

The requirement for the prepayment of the taxes owing for the Voluntary Disclosure remains. If the taxpayer is unable to pay the entire amount a payment arrangement can be requested.

The CRA still has the authority to accept or deny an application under the VDP however the new framework defines the qualifiers much clearer.

Criminal Prosecution – The new process also emphasizes the CRA’s position on criminal prosecution. A significant benefit of the VDP remains intact: taxpayers who submit valid disclosures under the program will not be referred for criminal prosecution related to the matters disclosed. This incentive, combined with relief from penalties and partial interest, provides a strong motivation for taxpayers to proactively correct past errors or omissions.

What if CRA says ‘NO’ – If CRA does not grant VDP relief they will send a letter with the reasoning why it was not granted. If the taxpayer disagrees with the CRA there are still options available. A request can be made for a second administrative review or an application can be made to the Federal Court of a judicial review to the decision.

Red Flag: There is no right of objection for a decision made under the VDP. Subsection 165(1.2) of the ITA prohibits a taxpayer from filing an objection to dispute the assessment of penalties and interest made under subsection 220(3.1).

The Bottom Line – The VDP is a great opportunity to correct errors and omissions from the past without incurring significant penalties and interest charges. Because the VDP deals with errors that are at least 1 year old, interest changes could be significant and penalties, such as the gross negligence penalty, can be avoided.

Link to new RC199 Form:

https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/rc199.html