Case Studies
Entity Setup & Case Study: Canadian Voluntary Disclosures Program Changes Oct 2025
Canada’s CRA has revised its Voluntary Disclosures Program—this case study shows how entities can use these changes to reduce penalties and clean up compliance issues.
By NomadicTax Research Team • 6 min read • November 20, 2025
## Background
On **October 1, 2025**, the Canada Revenue Agency (CRA) made important changes to its **Voluntary Disclosures Program (VDP)**, which allows taxpayers and registrants to correct unintentional errors or omissions in their filings and receive partial or full relief from penalties and interest. ([canada.ca](https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/voluntary-disclosures-program/changes-vdp.html?utm_source=openai))
## What’s Changed in VDP
- **Simplified Application Form:** Form RC199 has been revised to be more user-friendly. ([canada.ca](https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/voluntary-disclosures-program/changes-vdp.html?utm_source=openai))
- **Expanded Eligibility:** Now taxpayers who received a prompt from CRA—such as an **education letter** regarding potential non-compliance—may be eligible. Previously they might have been excluded. ([canada.ca](https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/voluntary-disclosures-program/changes-vdp.html?utm_source=openai))
- **Updated Relief Options:** Two relief tiers: **general relief** for unprompted applications (75% interest relief + 100% penalty relief), and **partial relief** for prompted ones (25% interest relief + up to 100% penalty relief) offered. ([canada.ca](https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/voluntary-disclosures-program/changes-vdp.html?utm_source=openai))
- **Document Requirements:** When correcting over multiple years: up to **10 years** of documentation required for foreign income/assets, **6 years** for Canadian-sourced, and **4 years** for GST/HST related reporting. ([canada.ca](https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/voluntary-disclosures-program/changes-vdp.html?utm_source=openai))
## Entity Setup Implications
Entities (corporations, trusts, partnerships) should consider the following:
- **Use VDP proactively:** If there are past unintentional omissions, applying now under general relief may result in only paying the owed tax and some interest — avoiding penalties.
- **Monitor communications:** If CRA contact triggers (e.g., education letter), delay can lead to only *partial relief*. Entities should assess eligibility quickly.
- **Foreign asset or intercompany compliance:** Given the 10-year window for foreign-sourced income/assets errors, multinational entities should audit their foreign reporting history.
## Case Study: Small Canadian Export Business
**Scenario:** A small export business discovered it failed to report foreign-derived income for years 2016-2024.
- Under the updated VDP, foreign-sourced income omissions can be disclosed for 10 years. Entities would prepare documentation for 2016-2024.
- If no previous CRA communication (education letter etc.), the business applies for **general relief**, getting 75% interest relief and 100% penalty relief on the tax owing.
- If CRA had already sent an education letter before application, only **partial relief** is available.
## Actionable Steps for Entities
1. **Evaluate your records**: Review the past 6–10 years of domestic and foreign income or HST/GST reporting.
2. **Determine eligibility**: Check for prompts from CRA; see whether you’ve been audited or investigated (which may exclude you).
3. **Complete RC199 carefully**: Gather required documents for each applicable year.
4. **Estimate tax, interest & penalties**: Use CRA tools or advisors to project liability under general vs partial relief.
5. **Apply before delay constraints**: While there's no formal sunset date, delays or triggers may reduce relief availability.
## Summary
The October 2025 VDP changes open up new opportunities for entities in Canada to correct past non-compliance with reduced cost. Entities with foreign income or unreported transactions especially stand to benefit—if they act promptly, document thoroughly, and align with the eligibility rules.