Is Interest Cancelled Under the CRA Voluntary Disclosures Program in Canada?

If you have unreported income or a late return, the interest on the back tax can be a large part of what you owe. Many people want to know whether the Voluntary Disclosures Program (VDP) cancels that interest, and how much.

The short answer is that it can reduce interest, but not erase it in most cases, and the amount depends on how you come forward and which years are involved. This article explains the relief levels, how years are treated, and what to do before you apply.

This article covers Canadian federal tax law, which applies in every province.

What the VDP can and cannot cancel

The VDP lets you come forward to correct errors or omissions, such as unreported income or unfiled returns. If your application is accepted, the CRA may give penalty and interest relief and will not refer the disclosed matter for criminal prosecution.

The relief does not reach the tax itself. The CRA describes the program as providing relief on penalties and interest, not on the tax, so the tax owing must be paid in full.

The current rules are in circular IC00-1R7 and apply to applications received on or after October 1, 2025. Earlier applications fall under IC00-1R6. Older terms such as general and limited relief have been replaced by unprompted and prompted.

How much interest is relieved

The percentage depends on whether your application is unprompted or prompted.

These figures are the normal levels for income tax. For GST/HST the relief matches: unprompted gets 75% interest relief and 100% penalty relief, and prompted gets 25% interest relief and up to 100% penalty relief.

There is one GST/HST exception. Wash transactions that qualify under Memorandum 16-3-1 can receive 100% relief of applicable penalties and interest, whether the application is unprompted or prompted.

Unprompted or prompted: what decides it

• Generally unprompted: the CRA has not communicated with you about the compliance issue, or the only contact was a general education letter.
• Generally prompted: the application follows CRA communication identifying a specific error or setting a correction deadline, or follows third-party information about your non-compliance.
• An education letter alone does not make an application prompted.

A CRA letter about a specific issue does not by itself end eligibility. If you are not under audit or investigation, the CRA treats the application as prompted and gives partial relief. A disclosure is not voluntary, however, if an audit or investigation has been started against you or a related taxpayer for the disclosed information, including by law enforcement, securities commissions or other regulators.

How relief differs by year

The CRA's legal basis for cancelling penalties and interest is subsection 220(3.1) of the Income Tax Act. A request must be made on or before the day ten calendar years after the end of the taxation year. Penalty and interest relief follows that limit, so older years may get reduced relief or none.

The CRA's June 2026 VDP page likewise says relief covers information going back up to 10 years from the disclosure date, and older information may get reduced relief.

Separately, the documents you must supply cover a shorter period. For income tax, records generally cover the most recent six years, or ten years for assets or income located outside Canada, and years with no errors need not be included. For GST/HST, supporting documents are required for the most recent four years, and the CRA may ask for older periods. Because CRA pages describe these periods differently, confirm the current figures before filing.

Once you apply, the CRA sends an acknowledgement letter with the effective date of disclosure. Relief runs up to that date if you qualify.

Situations that may not qualify

• Applications that produce a refund or no tax or penalties owing.
• Requests for relief on penalties or interest already assessed.
• Applications to make or alter an election, or where there is insolvency for the years involved.
• Applications missing required information, which the CRA may deny as incomplete.

If you are not eligible, other options include the taxpayer relief provisions. There is no right of objection to a VDP decision.

What to do next

• Check whether the CRA has contacted you about the issue, and keep any letters.
• Gather records for the affected years and estimate the tax owing.
• Use Form RC199, signed, with all returns and schedules needed to correct the problem.
• Include payment, or a request for a payment arrangement, though approval of an arrangement is not guaranteed.
• Submit by one method only: online, fax or mail.

If you are unsure, you can hold an informal, non-binding discussion with the CRA on an anonymous basis, but that is not an application and does not give you relief. A lawyer or accountant can help you judge whether you are prompted and what your years look like. If a representative submits for you, both of you must sign.

Frequently asked questions