Effective January 1, 2022, The Canadian Government has implemented an annual 1% tax on the value of vacant or underused residential real estate owned by non-resident, non-Canadian entities. The Underused Housing Tax (UHT) rules are applicable to residential properties, including Farm dwellings, owned on or after December 31, 2022.

Under these guidelines, residential property owners, unless exempt, are required to submit an annual UHT return (Form UHT-2900 Underused Housing Tax and Election Form). Failure to submit and disclose relevant information to the CRA on time can result in significant penalties and fines.

The deadline for filing the 2022 UHT return and remitting any taxes owed is April 30 of the subsequent calendar year.

Overview of Tax and Reporting

Every individual identified as the owner of a residential property in Canada on December 31 (except “excluded owners”) must file an annual return for the calendar year and pay a 1% tax on that property. This federal tax is additional to similar vacancy taxes administered by certain provinces and municipalities such as the Ontario Vacant Home Tax.

Residential properties may be exempt from the UHT where the homeowner is deemed an “Excluded Owner”.

Excluded Owners

Excluded owners, not subject to the UHT, include:

• Individual Canadian citizens or permanent residents of Canada unless you have an interest in a property as a Partner of a Partnership or Trustee of a Trust for a third party.
• Publicly traded Canadian corporations
• Registered charities
• Cooperative housing corporations
• Government Entities
• Municipal organizations, public institutions, and government bodies

All other owners, termed “Affected Owners”, must file an annual return and pay UHT unless they meet an available exemption. This includes private corporations, specified Canadian Partnerships & Trusts, and non-Canadian citizens or permanent residents. The property owner is the person identified under the land registration system applicable to the property’s location, including those with a life interest or long-term lease.

 

 

Residential Property

Unless exempt, the UHT applies to residential properties in Canada, defined as a detached house or similar building containing no more than three dwelling units, semi-detached houses, rowhouse units, residential condominium units, or similar premises intended as separate units.

A dwelling unit generally comprises a single unit with a kitchen, bath, and living area, and the residential property may include necessary land for its use.

 

Exemptions

For affected owners, various characteristics or property uses may exempt a residential property from UHT for a given year. Exemptions include:

1. Specified Canadian Corporation where a non resident does not control directly or indirectly 10% or more of the corporation by share value or voting rights
2. Partner of specified Canadian partnership where each partner is an “Excluded Owner” or “Specified Canadian Corpopration”
3. Trustee of specified Canadian trust
4. Property is primary place of residence
5. Qualifying occupancy
6. Property has limited seasonal access
7. Uninhabitable property in disaster or hazardous condition
8. Renovation or construction
9. Construction of property for sale
10. New Owner
11. Deceased Owner, Co-owner of deceased owner or Representative of deceased owner.
12. Prescribed area

Calculation of UHT

The UHT payable is 1% of the property value multiplied by the applicable ownership percentage. Property value is determined as the greater:

• The assessed value for property tax purposes or
• The most recent sale price on or before December 31 of the calendar year or;
• The Fair Market Value of the property, with a written appraisal, at any time during the year up to April 30 of the following year.

Penalties for Non-compliance

Failure to file annual UHT returns can result in significant penalties, including $5,000 for individuals and $10,000 for non-individual owners. Additional penalties and interest apply to outstanding taxes not paid by April 30 following the reporting year. Failure to file may render certain exemptions unavailable, leading to payable taxes. Further penalties may be imposed for failure to provide information, false statements, omissions, or filing under gross negligence.

 

Further Resources

The Canada Revenue Agency (CRA) has provided an online Self-Assessment Tool on the link below to help you understand if you are impacted by UHT:

Online Self-Assessment Tool

Additional information about the Underused Hosing Act can be found on the CRA website using the following links:

Introduction to the Underused Housing Act

Q&A About the Underused Housing Tax

Contact Us

The team at Gupta Accounting is here to provide expert guidance and support on navigating the complexities of the Underused Housing Tax and related matters. Should you require further assistance or information, feel free to reach out to us at info@guptaaccounting.com or call us at +1 416-748-1329.