The federal Underused Housing Tax (UHT) is a new tax from the 2022 Federal budget that came into effect on January 1, 2022. A tax return for affected owners must be filed by October 31, 2023 to avoid late filing penalties and interests. This was an extension that the CRA provided for the first year of filing, but 2024 and thereafter will have to be filed by April 30. Individuals that fail to file the return are subject to a minimum $5,000 penalty, while corporations that fail to file are subject to a $10,000 penalty.
This 1% tax is levied on the value of vacant or underused residential properties which were owned on December 31st of the previous tax year. Taxable value is the assessed property tax value for the property or the most recent sale price (whichever is greater). The tax is paid based on an owner’s proportionate share in the residential property.
Below is a summary of the UHT, the tax return, and filing obligations.
Who is obliged to file and pay?
Anyone who is an excluded owner is not obliged to file a return or pay any taxes under the UHT. This includes individuals who are Canadian citizens, permanent residents and registered charities.
Affected owners obligated to file a return include private corporations, partnerships, and trusts.
All affected owners must file an UHT return for each residential property owned on December 31st. They are required to pay the tax, unless there is qualification for an exemption.
What are the exemptions?
There are four broad categories of exemptions available:
1) Type of Owner
- Specified Canadian corporation – foreign owners (i.e. not Canadian citizens or permanent residents) control less than 10% of the issued shares with voting rights and value entitlement.
- Specified Canadian partnership – where each member is, on December 31, an excluded owner or a specified Canadian corporation.
- Specified Canadian trust – where each beneficiary is, on December 31, an excluded owner or a specified Canadian corporation.
- Other: New owner (owner acquired the property during the year), owner died in the year or prior year.
2) Availability of Property
- Whether the property is under construction, not suitable for living in, etc.
3) Occupancy of Property
- Primary resident of the individual of their immediate family
- One of the following individuals continuously occupies the property for at least a month, and for a total of 180 days in the year:
- Arm’s length tenant under written agreement
- Non-arm’s length tenant under written agreement and pays fair market rent
- Owner or spouse/common law partner, or child, who is a Canadian citizen or perm resident
4) Vacation Property
- Located in an “eligible area” (generally, rural areas) and used by the owner or spouse or common law partner for at least 28 days in the year
More information on these exemptions can be found here.
Registering for the UHT, calculating the tax liability and filing the return
Any affected owner must file a return (UHT-2900), even where an exemption applies. Filing the return requires a valid CRA tax identifier number (UR number) to be registered for under the Underused Housing Tax program account. Further information on registration can be found here.
For more information on the Underused Housing Tax, contact your Rise Advisor.
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