A new underused housing tax (UHT) went into effect in Canada on January 1, 2022. The tax affects property owners with vacant or underused housing and requires them to file an annual UHT return with the Canada Revenue Agency (CRA). In the 10 FAQs that follow below. we will explain the UHT, who is affected, and what to do if you need to file.
1. Who has to file Underused Housing Tax (UHT)?
Firstly, only those who own Canadian residential real estate are subject to the UHT rules.
- The requirement to file has been answered in reverse by the govt. by stating who is an “excluded owner” from filing the UHT return, being:
- Canadian citizens and Permanent Residents, other than those who hold interest in a property as a Partner in Partnership or a Trustee of a Trust.
- Publicly listed corporations.
- Registered charities.
- Other government and public service bodies.
- If you are not an “excluded owner”, you are an “affected owner“, being:
- an individual who is not a Canadian citizen or permanent resident
- an individual who is a Canadian citizen or permanent resident and who owns a residential property as a trustee of a trust.
- any person (Canadian or Non-resident) that owns a residential property as a partner of a partnership.
- a corporation that is incorporated outside Canada.
- a corporation that is not a publicly listed corporation (i.e. all Canadian Controlled Private Corporations (CCPCs))
- a Canadian corporation without share capital.
- You have to file the return if you meet this criteria, even if you do not have to pay the UHT. See exemptions below.
2. Who Does Not Have To Pay Underused Housing Tax (UHT)?
// Note that Exemption from Payment does not mean Exemption from Filing //
Exemption by Ownership:
- A Canadian corporation whose foreign ownership does not comprise more than 10% (by value or by voting rights).
- A Canadian Partnership where each member is “excluded” from filing.
- A Canadian Trust, where each beneficiary is “excluded” from filing.
- A New Owner, whereby the owner acquired the property during the year and was not an owner of that property at any time in the prior 9 years
- Where the Owner died during the year or the prior year
- A personal representative of a deceased individual and the person was not an owner of the property in the year or the subsequent year
- A co-owner of a property where another co-owner held at least 25% of the property at the time of death (exemption applies for year of death and the subsequent year).
Exemption by Availability of Property:
- if the property is under construction and is not substantially completed before April of the year
- if construction of the property is substantially completed between January 1 and March 31, the property is put for sale to the public during the year and the property the public during the year and the property was never occupied by an individual as a place of residence during the year.
- if the property is not suitable to be lived in year-round or is seasonally inaccessible.
- if the property is uninhabitable at least 60 continuous days in the year due to disaster or hazardous conditions (up to a max of 2 years from the same disaster).
- if the property is uninhabitable at least 120 consecutive days due to major renovations (this exemption is only available once every 10 years).
Exemption by Occupant of the Property:
- if the property is the primary place of residence for the individual, their spouse (or common-law partner) or their child attending a learning institution.
- if the property is occupied for at least 180 days in the year by one of:
- an unrelated individual who occupies the property under an agreement.
- a related individual who occupies the property under an agreement and pays a fair rent (5% of the value of the property).
- the owner or their spouse (or common-law partner), while the individual is in Canada for work, and the occupancy is for that purpose.
- the owner or their spouse (or common-law partner), parent or child who is a Canadian citizen or permanent resident.
Exemption by Locationof the Property:
- vacation property located in an eligible rural area of Canada and used by the owner or their spouse (or common-law partner) for at least 28 days of the year.
3. How To Calculate Underused Housing Tax (UHT)?
UHT is 1% of the greater of:
- the property’s assessed value for the year for property tax purposes; and
- most recent sale price, applied to the ownership percentage.
An owner can also elect to use the property’s fair market value as determined at any time during the year and up to April 30th of the following year, provided you can produce an appraisal.
4. Is UHT a separate tax return?
Yes, it is a separate tax return from the corporate, personal, partnership or trust tax return.
5. Do I have to file a separate UHT return for each property?
Yes, UHT return has to be filed for each property.
6. Which tax return do I have to file to report UHT?
You are required to file should complete and file Form UHT-2900, Underused Housing Tax Return and Election Form.
7. What is the penalty for late filing of Underused Housing Tax (UHT) Return?
UPDATE AS OF MARCH 28, 2023:
CRA announced that penalties and interest on late filing of UHT return will be waived, as long as the UHT return is filed or the UHT is paid by October 31, 2023.
Individual owners that fail to file the return on time are subject to a minimum $5,000 penalty, while corporations are subject to a minimum $10,000 penalty.
Note that this penalty applies even if your Underused Housing Tax payable is $0!
8. How far back can CRA go to assess UHT tax liabilities?
There is no time limit for CRA to assess the UHT tax liabilities, penalties and interest where taxpayers fail to file a required return.
9. What is the deadline to file Underused Housing Tax (UHT) Return in 2023?
The deadline to file Underused Housing Tax (UHT) Return in 2023 is May 1, 2023, given that April 30th falls on a weekend this year. Otherwise, the return is due on April 30th of each year for the prior year.
UPDATE AS OF MARCH 28, 2023:
CRA announced that penalties and interest on late filing of UHT return will be waived, as long as the UHT return is filed or the UHT is paid by October 31, 2023.
10. How do I file Underused Housing Tax (UHT) return?
You can file the Underused Housing Tax (UHT) return electronically or by paper and mailing it to CRA.
Bonus Question: Can Think Accounting Help?
Overwhelmed much?! We are too (a little bit). But we can help! The rules are new and complicated and our team is digging into them to make sure we can help our clients.
Reach out to us on this link and put in comments that you need help with your Underused Housing Tax return for 2022. We’ll ask for some basic details and give you a fee quote.