On June 9, 2022, the Government of Canada implemented the new Underused Housing Tax (UHT) that will affect certain residential property owners as of December 31, 2022.
The Underused Housing Tax is a 1% annual tax on vacant or underused housing in Canada on the taxable value or if elected, the fair market value of the residential property owned by affected owners.
How do I know if I have to file an Underused Housing Tax return?
Those who are considered affected owners must file a UHT return by April 30th.
You are an affected owner if you own residential property in Canada and are:
- An individual who owns a residential property as a trustee of a trust
- Any person who owns a residential property as a partner of a partnership
- An individual who is not a Canadian citizen or permanent resident
Your corporation is an affected owner if it owns residential property in Canada and is:
- A corporation that is incorporated outside Canada
- A Canadian corporation whose shares are not listed on a Canadian stock exchange (i.e. CCPCs and other private corporations), or
- A Canadian corporation without share capital
It is also worth noting that the UHT only applies to residential property. For the purposes of the UHT, examples of residential property include:
- Detached house or similar building that contains not more than three dwelling units (duplexes and triplexes)
- Semi-detached house, rowhouse unit, townhouses, and residential condominium unit, or
- Laneway houses and coach houses, cottages, cabins and chalets that are not for commercial use
The following building types are not considered residential properties for the purpose of the UHT:
- Quadruplexes (buildings that have four dwelling units)
- High-rise apartment buildings*
- Buildings that contain an apartment but are primarily (more than 50%) for retail or office use
- Commercial condominium units
- Boarding houses and lodging houses, commercial cottages, cabins and chalets for commercial use, hotels, motels, inns and bed and breakfasts, floating homes, mobile homes, park model trailers or travel trailers, motorhomes and camping trailers
*if the title has been stratified and then it is considered a residential property provided a single title (or lot) do not account for more than 3 dwelling units
Who is excluded from filing an Underused Housing Tax return?
Those who are considered excluded owners do not need to file a UHT return.
An excluded owner under the UHT includes, but is not limited to:
- A Canadian citizen or permanent resident
- Any person who owns residential property as a trustee of a mutual fund trust, real estate investment trust, or specified investment flow-through trust (SIFT) for Canadian income tax purposes
- A Canadian corporation whose shares are listed on a Canadian stock exchange
- A registered charity
- A cooperative housing corporation, or
- An Indigenous governing body or a corporation wholly owned by an Indigenous governing body
Are there any exemptions for the Underused Housing Tax?
There are several exemptions available to affected owners, but you will still need to file a UHT return even if you qualify for an exemption.
The residential property could be exempt from the UHT depending on:
The type of owner. Affected owners are exempt if they are:
- A specified Canadian corporation
- A partner of a specified Canadian partnership, or a trustee of a specified Canadian trust
- A new owner in the calendar year, or
- A deceased owner, or a co-owner or personal representative of a deceased owner in the year of death and the year following death
The availability of the residential property. You are exempt if the residential property in question is:
- Newly constructed
- Not suitable to be lived in year-round
- Seasonally inaccessible
- Temporarily uninhabitable due to a disaster, hazardous conditions or renovations*
* There are additional criteria that must be met to claim this exemption
The location and use of the residential property. You are exempt if the property in question is:
- A vacation property located in an eligible area of Canada and used by you or your spouse or common-law partner for at least 28 days in the calendar year
The occupant of the residential property. You are exempt if:
- Your property is the primary place of residence for you, your spouse or common-law partner, or for your child who is attending a designated learning institution
- Your property was occupied for at least 180 days in the year, made up of one or more month-long periods (known as a qualifying occupancy) by a tenant or relative paying fair rent, your spouse or common law partner under a work permit or a direct relative with Canadian citizenship or permanent residency.
How much Underused Housing Tax will I have to pay?
To calculate the amount you will owe on your UHT return, multiply the value of the property in question by 1%. If you do not own 100% of the property, multiply the amount again by your ownership percentage.
How to file an Underused Housing Tax return
An affected owner must file a UHT Return (Form UHT-2900) for a residential property even if the ownership is exempt from the UHT by April 30 of the following calendar year. The affected owner must file a separate return for each residential property owned or if the property is owned by multiple owners.
To file a return, you will need a social insurance number, individual tax number, or a Canadian business number. If you are a corporation, you must use a business number with an Underused Housing Tax (RU) program account identifier code to file your UHT Return.
What are the penalties for failing to file an Underused Housing Tax return on time?
There are significant penalties for failing to file your UHT return when it is due. Affected owners who do not file on time will be penalized a minimum of:
- $5,000 for individuals
- $10,000 for corporations
An affected owner of an exempt property could still be subject to UHT if the UHT return is not completed.
Questions about the Underused Housing Tax?
If you are an affected owner, or think you may be, now is a good time to start discussing your situation with your tax planner. If you are a current RHN client or are looking for an accounting firm with extensive non-resident tax planning experience, we’re happy to help you navigate the Underused Housing Tax.
Please note: the CRA has been making a number of updates to the interpretations of the Underused Housing Tax Act. Please contact our office to ensure you have the most up-to-date information on filing requirements.
This post has been prepared for general information purposes. It is not advice. The information presented may not fit your unique situation, please consult one of our trusted business advisors at RHN CPA for further clarification and interpretation of your circumstances.