Canada’s New Tax Rules Effective October 1, 2025 — A Complete Guide to the CRA’s Voluntary Disclosures Program Overhaul

The overhaul expands eligibility, increases potential relief, and streamlines the application process. For businesses and individuals who need to correct past errors—especially around GST/HST—the new framework can eliminate penalties and significantly reduce interest if you disclose before enforcement starts. This guide explains what’s changing, who benefits, and how to prepare a winning submission.

What is the VDP (Voluntary Disclosures Program) and why it matters

• Purpose: The VDP allows taxpayers to proactively correct past reporting errors before the CRA initiates enforcement. Successful applications protect you from penalties and prosecution, and provide interest relief.
• Common use cases:
  • Late or missing GST/HST returns
  • Underreported or unreported income (including crypto or platform income)
  • Marketplace operator and platform GST/HST errors
  • Importers’ customs valuation adjustments creating GST liabilities
• Why now: Prescribed interest rates remain elevated, CRA analytics are stronger than ever, and the 2025 changes widen the door to relief. Acting before an audit begins can be the difference between a manageable settlement and a costly penalty assessment.

Snapshot of changes to the Voluntary Disclosures Program as of October 1, 2025

• Streamlined Form RC199: Shorter, clearer, with checklists for multiple tax statutes.
• Expanded eligibility: “Prompted” taxpayers—those contacted informally by the CRA about an issue—can now qualify, provided no formal audit of the same issue has begun.
• Two relief tiers:
  • General (unprompted): 100% penalty relief + higher interest relief
  • Partial (prompted): up to 100% penalty relief + lower interest relief
• Look‑back caps:
  • GST/HST: 4 years
  • Canadian‑source income: 6 years
  • Foreign‑source income/assets: 10 years
• Second‑chance flexibility: A repeat disclosure may be accepted if the issue differs or circumstances were beyond your control.
• Digital readiness: The redesigned form anticipates electronic submission pathways and cleaner supporting schedules.

Deep dive: What the Voluntary Disclosures Program new rules mean in practice

1. SimplifiedRC199 application

• Unified structure: One application covers Income Tax, GST/HST, and related regimes (e.g., modern platform rules).
• Checklists over essays: More structured prompts reduce ambiguity and help ensure completeness.
• Better attachments: Organize schedules (income, assets, GST/HST reconciliations, import documentation) in spreadsheets and PDFs for quick CRA review.

2. Expanded eligibility for “prompted” taxpayers

• What counts as “prompted”: Educational letters, “nudge” emails, or phone inquiries about a potential issue.
• What still disqualifies you: A formal audit, compliance verification, or criminal investigation on the same issue that you intend to disclose.
• Why this matters: Many businesses, importers, and platforms receive informal queries as a matter of course. The new rules bring these taxpayers back into the program.

3. Relief tiers and how to maximize them

• General relief (unprompted):
  • Best for: Proactive filers who identify issues before CRA contact.
  • Impact: Full penalty elimination and substantial interest relief.
• Partial relief (prompted):
  • Best for: Taxpayers already on CRA’s radar but not yet under audit.
  • Impact: Penalties often eliminated; interest relief still meaningful, though less than General.
• Factors that influence relief:
  • Completeness and candour of disclosure
  • Speed and cooperation in responding to CRA requests
  • Payment in full or a credible payment arrangement

4. Documentation scope and look‑back limits

• Caps aim to reduce the burden of correcting historical issues while still recapturing revenue.
• Practical takeaway:
  • GST/HST registrants typically prepare four years of returns/ledgers, input tax credit evidence, and rate/logic justifications.
  • Domestic income issues often focus on six years of returns, T‑slips, and bank reconciliations.
  • Foreign asset/income disclosures usually require up to ten years of records, including statements and beneficial ownership details.

Implications for GST/HST compliance Drawing on best practices from the attached resources, here’s where the VDP intersects with day‑to‑day GST/HST:

1. Registration and thresholds

• Domestic and non‑resident sellers generally face a CAD 30,000 small‑supplier threshold over any rolling 12‑month period.
• Digital service providers and platform operators may have special or simplified registration paths.
• Non‑registration or late registration is a common VDP use case; the 4‑year cap limits the documentation lift for late registrants.

2. Charging the correct tax

• Canada uses a federal GST (5%) and harmonized HST rates in certain provinces. Provinces like BC, SK, and MB also have standalone PSTs; Quebec levies QST.
• Errors often occur with destination‑based rates, platform‑facilitated transactions, or cross‑border digital supplies.
• The VDP is the cleanest way to fix misapplied rates while cutting interest and removing penalties.

3. Invoicing and record keeping

• Compliant invoices must include supplier legal name, GST/HST number, date, description, and tax amounts/rates. Electronic invoicing is acceptable if all data requirements are met and records are retained for at least six years.
• Poor invoicing practices lead to denied input tax credits (ITCs). If you discover systemic issues, a combined VDP (to correct output tax) and process remediation (to protect ITCs) is often prudent.

4. Digital economy and marketplace operators

• Platforms facilitating goods, accommodation, or digital services may be deemed suppliers or have collection obligations.
• Common pitfalls: unregistered operators, incorrect rate logic by province, and misclassification of B2B vs. B2C supplies.
• The VDP provides a structured path to correct past under‑collection and avoid gross‑negligence penalties.

5. Importers and customs valuation

• Importers must self‑assess GST on value adjustments and may have exposure when transfer‑pricing adjustments flow through after import.
• Documentation to prepare: B3s, broker summaries, value‑for‑duty adjustments, and reconciliation of import values to sales.
• Under the new rules, even if you’ve received an “educational” query, you may still qualify for Partial relief—often enough to turn a painful assessment into a manageable settlement.

Step‑by‑step blueprint to file under the new VDP

VDP Phase 1 — Diagnose

1. Run a self‑audit: Review GST/HST filings, rates by province, input tax credit support, digital platform flows, import valuations, and domestic/foreign income.
2. Quantify exposure: Prepare a preliminary calculation of tax, penalties (pre‑VDP), and interest. Frame both a “General” and a “Partial” scenario if CRA contact is possible.
3. Check status: Confirm whether any formal CRA audit or verification is open on the same issue. If so, VDP may be unavailable.

Phase 2 — Prepare

4.Assemble documentation:

• GST/HST: four years of returns, ledgers, rate logic, ITC support, and any marketplace agreements.
• Income: six years of returns, financials, bank reconciliations; up to ten years for foreign income/assets.
• Importers: customs entries, broker statements, valuation adjustments, and reconciliations.

5. Draft the narrative: Explain: what went wrong, why it happened, when it was discovered, and what controls you’ve implemented to prevent recurrence. Keep it factual and concise.

6. Choose timing

• If you have not been contacted: file as soon as your package is complete to maximize General relief.
• If you’ve been informally contacted: you may still file under the Partial tier after October 1, 2025.

Phase 3 — Submit and follow‑through

7. Complete Form RC199 (2025 version): Use the streamlined checklists and attach schedules and spreadsheets.

8. Payment strategy: Full payment accelerates processing; if not possible, propose an instalment plan that aligns with cash flow realities.

9. Respond promptly: CRA will request clarifications; reply within stated deadlines to avoid default and preserve relief.

10. Implement controls: Update tax engine logic, platform settings, invoicing templates, and importer valuation procedures. Train staff and set up periodic internal reviews.

Transitional timeline and what to expect

• Before September 30, 2025: Old rules apply; prompted cases are generally ineligible.
• October 1, 2025 onward: New RC199 and guidelines take effect; prompted cases become eligible; two‑tier relief is available.
• Late 2025: CRA training and backlog may slow processing times; submit a complete and well‑organized package to stay ahead.
• 2026 outlook: Expect increased analytics‑driven enforcement against those who did not leverage the generous 2025 terms.

Numeric examples: How relief changes the math Example A — Unprompted GST/HST errors (General relief)

• Uncollected GST/HST: $200,000 across four years
• Pre‑VDP penalties (illustrative): $40,000
• Pre‑VDP interest (illustrative): $60,000
• After VDP: penalties eliminated; interest significantly reduced
• Total savings: substantial, especially as interest rates remain high

Example B — Prompted importer (Partial relief)

• GST owing on valuation adjustments: $120,000 (2019–2024)
• Pre‑VDP penalties: $60,000
• Pre‑VDP interest: $72,000
• After VDP: penalties eliminated; interest materially reduced
• Net savings versus doing nothing: six figures in many importer scenarios

Governance and prevention going forward

• Rate logic: Validate GST/HST rate mapping by customer location and product/service type. Update for provincial changes (e.g., Nova Scotia HST adjustments).
• Registration hygiene: Review registration needs for domestic, non‑resident, and platform operations, including simplified regimes where available.
• Invoicing: Standardize templates; ensure required fields are present. Maintain e‑records for six years.
• Digital and marketplace: Confirm whether you’re a deemed supplier or facilitator, and whether obligations sit with you or third parties.
• Importers: Align transfer pricing updates with customs valuation procedures to avoid trailing GST exposure.
• Internal controls: Calendar quarterly “mini‑audits” and an annual comprehensive review. Train staff on GST/HST nuances and platform rules.

FAQ — 12 common questions

1. Can I still qualify if CRA emailed me about missing GST/HST details?

• Yes, after October 1, 2025, informal contact doesn’t automatically disqualify you. As long as there’s no formal audit on the same issue, you may apply under the Partial tier.

2. Should I rush to file before October 1?

• Usually no. The new rules are more flexible and often more generous. If you’re unprompted and ready now, you can decide based on your interest exposure; otherwise, prepare to file right after October 1.

3. Do individuals and corporations get different relief?

• No. The tiers apply uniformly; the facts of your disclosure drive outcomes, not your entity type.

4. Can I file electronically?

• Expect a gradual move toward e‑submission. For now, prepare a complete and organized package and use the latest RC199 format.

5. What if I can’t pay in full?

• Submit a realistic instalment plan. Strong disclosure quality and cooperation increase acceptance odds.

6. How far back do I need to go?

• Plan for four years (GST/HST), six years (domestic income), and up to ten years (foreign income/assets) unless CRA flags high‑risk indicators.

7. Will CRA still audit me after VDP?

• The disclosure is reviewed on its merits. Relief cancels penalties/interest for the disclosed issue; it doesn’t guarantee zero follow‑up.

8. Can I apply a second time later?

• A second disclosure may be allowed if it concerns a different issue or stems from circumstances beyond your control.

9. How long does processing take?

• Simple files can resolve in 3–6 months; complex, multi‑year cases may take longer—especially during late‑2025 training backlogs.

10. What if my platform misapplied tax rates?

• Disclose the error, fix rate logic by province, and provide a clear remediation plan. Marketplace operators should address deemed‑supplier obligations explicitly.

11. Do the rules affect rebates or ITCs?

• Yes—poor invoicing or documentation can jeopardize ITCs. Use the VDP to correct output tax while fortifying documentation to protect credits.

12. I’m a non‑resident digital seller—what now?

• Confirm registration obligations, especially for B2C supplies. If you exceeded thresholds or misapplied rates, prepare a simplified‑system disclosure package and correct going forward.

Old vs. new VDP — quick comparison

• Prompted eligibility: No → Yes
• Interest relief: Lower → Higher, tiered
• Documentation scope: Discretionary → Capped by category
• Application: Dense narratives → Streamlined checklists and schedules
• Second disclosures: Rare → Permitted in defined circumstances

The October 1, 2025 update opens a valuable window to correct past errors on favourable terms. If you suspect exposure in GST/HST, imports, digital platforms, or unreported income, prepare your RC199 now and file promptly once the new rules take effect. Early, complete, and candid disclosures receive the best outcomes.

Now is a great time to correct past tax filing errors – contact Jeremy Scott Law for assistance.