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Missed UHTA Deadline? Apply for Voluntary Disclosure Program (VDP) Relief

Published:

December 4, 2024

Author(s):

• Matthew Orrell

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Maximum penalties under the Underused Housing Tax Act (UHTA) are significant: initial penalties for a single taxation year can be as high as $5,000 for an individual and as high as $10,000 for non-individuals (for example, corporations) in 2022, then $1,000 and $2,000 respectively for subsequent years. In addition to these initial penalties, the penalty increases over time with no identified maximum, to include:

• 5% of the tax payable for each outstanding calendar year; and
• 3% of the tax payable for each complete calendar month the return remains outstanding.

This penalty is per filing year, so the longer affected owners wait, the more risk they take. Luckily, the Voluntary Disclosure Program (VDP) offers a new solution to taxpayers that have missed the filing and payment deadlines.

On November 26, 2024, the Canada Revenue Agency (CRA) verbally confirmed it will accept a Voluntary Disclosure Program (VDP) application for relief for late underused housing tax returns under the UHTA. CRA has also indicated that even if a taxpayer owes no tax under the UHTA, it can file a valid VDP application to allow for relief from penalties and interest for a late underused housing tax return. In addition, CRA indicated official communications will be released in the near future on this option for relief. In discussions with the CRA, it also recommended taxpayers can request relief from penalties and interest as an alternative to the VDP (Form 4288). However, in most cases, pursuing relief via the VDP is likely the more strategic approach provided the facts support its use.

UHTA Obligations. The UHTA imposes a tax based on ownership of residential property as of December 31 of any particular tax year beginning in 2022 and requires taxpayers both file an underused housing tax return and pay the tax by April 30 of the following year.

VDP Relief. For relief under the Voluntary Disclosure Program, at least one year must have passed since the original filing due date unless the VDP application is submitted alongside an additional filing that is at least one year overdue. This one-year minimum period applies regardless of whether the disclosure pertains to taxes owed or solely penalties and interest. For example:

• If tax, or solely a penalty, for the 2023 taxation year is owed under the UHTA, the underused housing tax return due date in either case is April 30, 2024. However, despite the fact the tax indebtedness occurs on December 31, the VDP focuses on when the filing was past due. Therefore, a taxpayer could only file a valid VDP application for the 2023 tax year in respect of their underused housing tax return on May 1, 2025 or later.
• On the other hand, if a taxpayer filed a 2022 and a 2023 underused housing tax return before May 1, 2025 but after April 30, 2024, CRA would accept VDP applications for both years because the 2022 return would be outstanding for at least one calendar year. Relying on paragraph 37 of Information Circular 00-1R6, a taxpayer voluntarily disclosing could be considered for relief for 2023 when its VDP application for 2023 were filed alongside its VDP application for 2022 – even when filed before May 1, 2025.

Please contact your McInnes Cooper lawyer or any member of our Tax Solutions Team @ McInnes Cooper to discuss filing your Underused Housing Tax Act returns – or your application for relief under the Voluntary Disclosure Program.

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