Prompted vs Unprompted VDP Applications in Canada: Your Relief

You have tax to correct, such as unreported income or a return you never filed. Then a letter arrives from the Canada Revenue Agency (CRA), or you worry one might. The question is whether it is too late to use the Voluntary Disclosures Program (VDP).

Since October 1, 2025, the CRA sorts VDP applications into unprompted and prompted. Which one you fall into affects how much penalty and interest relief you can expect. This article explains the test in plain language. It is general information, not advice on your situation.

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

Which rules apply to your application

The CRA's current VDP circular, IC00-1R7, applies to applications received on or after October 1, 2025. Earlier applications fall under IC00-1R6. For GST/HST and related taxes, Memorandum 16-5-1 applies to applications received on or after October 1, 2025, and earlier ones fall under Memorandum 16-5.

The overhaul replaced the old terms. The labels "general" and "limited" relief and the old "no enforcement action" test no longer apply to new applications. They are replaced by unprompted and prompted. They remain relevant only for applications received before October 1, 2025.

What makes an application unprompted or prompted

An application is generally unprompted if the CRA has not communicated with you about the compliance issue, or if the only contact was a general education letter.

An application is generally prompted if it follows CRA communication that identifies a specific error or sets a correction deadline, or if it follows third-party information about your non-compliance. An education letter alone does not make it prompted.

What relief you can expect at each level

These are the normal levels, not a promise for any one case. The same split applies to GST/HST: unprompted gets 75% interest relief and 100% penalty relief, and prompted gets 25% interest relief and up to 100% penalty relief. The exception is GST/HST wash transactions that qualify under Memorandum 16-3-1, which can receive 100% relief of applicable penalties and interest whether the application is unprompted or prompted.

The VDP gives relief on penalties and interest, not on the tax itself. Tax owing must be paid.

When a CRA letter does and does not end eligibility

A CRA letter or notice 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.

An audit or investigation does end it. A disclosure is not voluntary if an audit or investigation has been initiated against you or a related taxpayer for the disclosed information. This includes investigations by law enforcement, securities commissions or other federal or provincial regulators, not just the CRA. The same voluntary requirement applies to GST/HST.

Other conditions still apply. The application must be complete, must involve interest, penalties or both, must include information at least one year past the filing due date, and must include payment of the estimated tax owing or a request for a payment arrangement.

Limits, protections and the decision letter

• After you apply, the CRA sends an acknowledgement letter with the effective date of disclosure (EDD). Relief runs up to the EDD if you qualify.
• The legal basis for cancelling penalties and interest is subsection 220(3.1) of the Income Tax Act, and the request must be made on or before the day ten calendar years after the end of the taxation year. Older years may get reduced or no relief.
• Eligible applicants are protected from prosecution for the disclosed information, and gross negligence penalties do not apply to it.
• The CRA may still audit any information in the application, and if it finds fraud or misrepresentation, an assessment may cover any year.

The decision letter states whether the application was unprompted or prompted, the relief level and the eligible tax years. If relief is denied, it gives the reason.

If you disagree, you can ask in writing for a second administrative review by the Assistant Director of the Shawinigan National Verification and Collections Centre. The CRA asks you to do this before applying for judicial review. Judicial review is in the Federal Court, using Form 301 Notice of Application, and generally must be filed within 30 days of the CRA's notification. There is no right of objection to a VDP decision.

What to do next

• Find any CRA letters and note exactly what they say: a general education letter, a named error, or a deadline.
• Check whether you have heard of any audit or investigation involving you or a related person, including by a regulator.
• Gather records for the affected years and work out the estimated tax owing.
• Decide how you will pay, or whether you will request a payment arrangement, which is not guaranteed.
• If you are unsure, you can have an anonymous, non-binding discussion with the CRA, but that is not an application.
• Speak with a lawyer or accountant before filing, because the prompted or unprompted label depends on the facts.

Frequently asked questions