CRA Update: Changes to the Voluntary Disclosure Program and More

Taxpayers who realize they've made an error or omission on their tax returns can refile their taxes for up to 4 years or file an amendment for up to 10 years. If you likely owe a substantial amount, though, you can come clean—and perhaps earn some lenience and interest relief—by applying to the CRA's Voluntary Disclosure Program (VDP). On October 1, the CRA introduced a few changes to the VDP that will make it easier and faster to fix errors or omissions. This initiative is part of broader improvements the CRA is making to address persistent service delays.

First, what is the VDP?

The Voluntary Disclosure Program (VDP) is a CRA initiative that grants relief on a case-by-case basis to taxpayers and registrants who disclose an error or omission they made in their tax filings.

Canada's income tax system relies on a self-assessment system: individuals and businesses calculate how much tax they owe and report it to the CRA, which administers tax laws for the Government of Canada and most provinces and territories. When tax season arrives, the CRA expects you to file an accurate tax return, detailing all your income sources.

If you realize, a year or more later, that you made a mistake—like forgetting to disclose side-hustle income or not realizing you have to report foreign income—you can apply to the VDP. Doing so could mean avoiding or reducing any penalties or interest charges that the CRA could impose on you, if it decides to conduct an audit. And, if your VDP application is eligible for relief, you'll be spared criminal prosecution, including potential jail time.

“The idea behind the VDP is that it encourages people to come forward about their mistakes and omissions,” says Maria Eliza Santos, a tax expert with TurboTax Canada. “And now the CRA is making it easier to get that process started.”

What's changed in the VDP?

As of October 1, the CRA made several changes to the VDP. Here's a rundown of what's new. (Note that if you applied to the VDP before October 1, you'll be considered for relief under the 2018 policy.)

1. Shorter application form: The CRA has created a simpler version of Form RC199, which you must fill out to make a disclosure under the VDP.

2. Relaxed eligibility: Before October 1, taxpayers and registrants (for GST/HST or withholding taxes, for example) who had already been contacted by the CRA about a potential non-compliance issue couldn't apply to the VDP. Now, they can, except for those under audit or investigation or “egregiously non-compliant.”

3. Two new relief tiers:

• General relief (for unprompted applications): If you file a VDP application to disclose non-compliance before the CRA brings it up, you could receive up to 75% in interest relief and 100% relief of applicable penalties.
• Partial relief (for prompted applications): If you file a VDP application after the CRA has flagged it, you could receive up to 25% in interest relief and 100% relief of applicable penalties.

This is an improvement over the previous “general” and “limited” categories, says Santos. “Before, the general category granted relief from 50% of the interest, and the limited category offered zero interest relief. Now there's a little more financial incentive for people who come forward on their own.”

While you may get a break on penalties and interest, note that you still have to pay any taxes owing. As the CRA points out, “It is important that the relief given under the VDP be fair. It is not meant to reward taxpayers or registrants looking for a way to avoid paying their fair share of taxes.”

Also note that the 100% relief on penalties and interest for “wash transactions”—which involve a supplier failing to charge and collect HST/GST—within a VDP application remains unchanged from 2018, the last time the VDP process was updated.

4. Clearer information on what documents to include: As of October 1, the required documentation will be limited to:

• The most recent 4 years for GST/HST-related information
• The most recent 6 years for Canadian-source income and/or assets
• The most recent 10 years for foreign-source income and/or assets

Applicants don't have to submit documents for tax years within these periods that are free of errors and omissions.

What else is the CRA doing to improve service?

A slew of complaints from the public led Ottawa to direct the CRA to implement a 100-day Service Improvement Plan. The plan instructs the CRA to strengthen its services to address a laundry list of problems, ranging from long wait times at call centres to unclear and inconsistent tax filing information.

The 100-day period began on Sept. 2 and will end on Dec. 11. The CRA recently published an update on the four areas it's focusing on:

1. Answering more calls

The agency says it has extended term contracts for call centre workers and that it plans to hire more staff to reduce wait times.

2. Introducing more digital self-service options

The CRA extended its Online Chat service with representatives by three hours per day, until 8 p.m. instead of 5 p.m. (ET). It's also working on features that will let users register for a new login without needing to call for help, and to independently arrange payments for balances of $1,000 or more—both are slated to launch on October 20. The CRA is also boosting the number of topics its GenAI chatbot can answer questions about. (Look for the smiling robot icon in the bottom right corner of CRA webpages.)

3. Tackling the root causes of service issues

Teams are investigating the reasons for long wait times and backlogs. The CRA is also testing a call-back program for Canadians asking about the Disability Tax Credit.

4. Modernizing services

The CRA is piloting a new call-scheduling system and telephony system, using AI tools already at its disposal.

How might changes to CRA services affect you?

As the CRA hires more staff and rolls out new features, Canadians should experience shorter wait times. Already, the agency is answering more of the calls to its general inquiries line; it says the answer rate has risen from 35% in the summer to 70% in mid-September.

You'll also have access to more self-service tools, making it easier to find information 24/7, register for new credentials, set up payments, and more.

Need help navigating these changes? Were here to help.

Service changes can be confusing, even frustrating at times. Our experts are on standby if you have tax questions and can't get through to a CRA agent. TurboTax can answer your tax questions, help you when you file, or do it for you.

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