The Underused Housing Tax (UHT) is the most recent Canadian property related tax, this one introduced by the Government of Canada in June 2022. These measures are different from the BC Speculation and Vacancy tax. The UHT is an annual 1% tax on the ownership of vacant or underused housing in Canada that was enacted June 9, 2022 and took effect from January 1, 2022. The tax mainly applies to non-resident, non-Canadian owners. In some situations, however, it also applies to Canadian owners.
When determining how the tax applies to you it is important to see if you are an excluded owner or an affected owner. An excluded owner will not be subject to the tax and will not have any filing obligations. An affected owner is required to file a tax return. An affected owner may or may not be subject to the tax.
Excluded Owners – No Return Filing Obligation
If you’re an excluded owner of residential property in Canada (“the property”), you have no obligations or liabilities under the Underused Housing Tax Act.
An excluded owner includes:
- An individual who is a Canadian citizen or permanent resident of Canada (unless point 2 below applies);
- Any person (including Canadian citizen or permanent resident of Canada) that owns the property as a trustee of a mutual fund trust, real estate investment trust (“REIT”) or specified investment flow-through trust (SIFT) for Canadian tax purposes;
- Canadian corporation whose shares are listed on a Canadian stock exchange (public);
- A registered charity;
- A cooperative housing corporation;
- Municipal organizations and other public institutions and government bodies;
- An Indigenous governing body or a corporation.
If you’re not an excluded owner, then you are an affected owner and must file a return and pay any Underused Housing Tax by April 30 of the following calendar year.
Exemptions from Paying the Underused Housing Tax
Affected owners are required to file a UHT tax return but they may be eligible to claim an exemption from the tax. The most common exemptions include:
- Primary place of residence (of the owner, their spouse, or their child who is attending a designated learning institution); Footnote 1
- Qualifying occupants – the property is occupied by one or more qualifying occupants for at least 180 days (6 months of qualifying occupancy period); qualifying occupancy period means at least one month in the calendar year was continuously occupied; Footnote 1
- A qualifying occupant in relation to the owner includes:
- An arm’s length tenant under a written agreement
- A non-arm’s length tenant given continuous occupancy of the property under a written agreement for fair market value (FMV)
- An individual owner or their spouse in Canada for authorized work under a Canadian work permit;
- A spouse, parent or child of the owner who is a Canadian citizen or permanent resident;
- Limited availability in the year based on:
- Limited seasonal access – not suitable year-round or not accessible for part of the year
- Disaster or hazardous condition – property uninhabitable for at least 60 consecutive days in a calendar year due to circumstances beyond the owner’s control, also, the property was not exempt for the same reason in prior years
- Renovation – property uninhabitable for at least 120 consecutive days in the calendar year due to a renovation without unreasonable delay, also, the property was not exempt for the same reason in prior years
- Under construction – property was not substantially (≥90%) completed before April of the calendar year or substantially completed in the first three months of the year and offered for sale to the public but never occupied by an individual
- Year of acquisition – owner acquired the property during the calendar year and did not own the same property in the previous 9 years
- Location based exemption – property in less densely populated areas may be exempt from the UHT if the residential property is located in a prescribed area of Canada and used personally by the owner, the owner’s spouse or both for at least 28 days during the calendar year. Footnote 2
Common Taxpayers Subject to the UHT Return and Tax
Non-Resident Owners who Own Canadian Residential Rental Property
Individuals who are not Canadian citizens or permanent residents will generally have to file the return. For example, a non-resident owner who receives rental income from residential property in Canada are affected owners. Affected owners who elected to file under Section 216 of the Income Tax Act should be mindful of the different due dates. Although their Section 216 tax return may be due June 30, the UHT return is due April 30. For more information on this scenario, please review our newsletter titled Non-Residents Purchasing and Owning Rental Property in Canada, released in February 2023.
Private Corporations Owning Residential Property
Private corporations, including Canadian Controlled Private Corporations (CCPC), that own residential property in Canada and are not eligible for a filing exclusion are subject to the UHT return and tax.
Specified Canadian corporations are exempt from UHT tax. However, as the threshold for foreign ownership is quite low, any level of foreign ownership should be closely monitored. If you’re required to file the UHT return for a corporation, the corporation will also need to register for an underused housing number (RU) program account identifier code with CRA; this can be obtained instantly online.
Trusts Holding Residential Property
Where trusts are set up holding residential property, the trustee is generally the affected owner required to file the UHT return. Unless the trust is a specified Canadian trust (all beneficiaries are excluded owners), the property may be subject to the UHT. Since trustees legally own the property, they must file the return and remit the tax. This is different from T3 trust tax returns where the trustee files on behalf of the Trust.
How the UHT is Calculated
The UHT is 1% of the property’s value multiplied by the person’s ownership percentage. The value of the residential property is determined in one of two ways:
Taxable value, which is the greater of:
- Assessed tax value for the year under the property tax assessment; and
- Most recent sale price on or before December 31 of the calendar year you’re filing; or
Fair market value (FMV), used by filing an election with CRA along with the return (Form UHT-2900). To elect FMV, the owner must obtain an appraisal report prepared by an accredited arm’s length real estate appraiser.
Due Date of the UHT Return and Tax Payment
On February 6, 2023, CRA released the Form UHT-2900 to facilitate this return filing. If you fall into the category of affected owner, you must file an annual return with CRA for each residential property you own on December 31 of a calendar year. The return and UHT payable are due by April 30 of the following calendar year. The first return for the 2022 calendar year is due May 1, 2023 since April 30 falls on a weekend. There are two options to file the UHT return:
- Download the Form UHT-2900 and mail to CRA or submit online through your CRA MyAccount for individuals or My Business Account available using this link;
- Complete the UHT filing requirement using CRA’s online portal. You will require a digital access code to file, however this can be obtained through the same portal link by clicking “Request a DAC.”
Where the property is owned jointly, each affected owner must file separate UHT returns for the property and pay the tax if an exemption is not available.
Tax Identifier Number
To file the UHT return, you must have a valid CRA tax identifier number. Depending on the owner, your tax identifier number may be a Social Insurance Number (SIN), Individual Tax Number (ITN) or Canadian Business Number (BN) with an Underused Housing Tax (RU) program identifier code. Note, a Trust Account Number (TAN) cannot be used to file Underused Housing Tax returns.
Failure to File Penalties
Affected owners who do not file a UHT return is liable for a penalty equal to the greater of:
- $5,000 for individuals or $10,000 for corporations; and
- Total of:
- 5% of the UHT payable by the person on the residential property for the calendar year; and
- 3% of tax payable times number of complete months after the due date the balance is unpaid.
Where the return is not filed by December 31 of the following calendar year, the penalty is calculated as if the exemptions did not apply and penalty in (2) will be determined as if tax was payable for the property. If no return is filed for a calendar year, that year will never become statute barred.
Non-resident Owners Selling Canadian Residential Property
A sale or transfer by a non-resident of property located in Canada creates special reporting requirements where the vendor must make a request to CRA for a certificate of compliance under Section 116 of the Income Tax Act. Bill C-32 introduced a provision which allows the CRA to decline a request for a Section 116 certificate of compliance where a non-resident vendor has not fully complied with its UHT tax and reporting obligations for all periods up to the date of sale.
For more information and clarification on the UHT or the Section 116 filing obligations for non-residents, please contact one of our staff members at Cameron Izard Snell.
Footnotes:
- Footnote 1 – If the owner and spouse own multiple residential properties, they may not qualify for the primary place of residence or qualifying occupancy exemptions unless they file an election with CRA to designate one property for the exemption. The election must be filed by April 30 of the following calendar year with the UHT return.
- Footnote 2 – To determine if a residential property is in a prescribed area of Canada, enter your postal code in CRA’s Underused housing tax vacation property designation tool.