Starting January 1, 2022, the Underused Housing Tax Act (UHT Act) became effective, mandating certain non-Canadian property owners (and in certain circumstances, some Canadian property owners) to report annually their ownership and, subject to certain exemptions, pay a 1% tax on the property’s value. Residential property owners should be aware of their potential filing requirements and liability to pay the UHT. Residential properties include detached houses, semi-detached houses, rowhouse units, and condominium units located in Canada. The deadline for filing the UHT return for the 2022 calendar year is April 30, 2023.
Owners of one or more residential properties in Canada as of December 31 of a calendar year, except “excluded owners” (as discussed below), must file an annual return, known as a UHT Return, for each property. The filing requirement applies even if no UHT is payable due to the availability of a statutory exemption under the UHT Act.
Residential property owners should be aware of their potential filing requirements and liability to pay the UHT.
For the purpose of the UHT Act, the registered owner of the property, not the beneficial owner, is considered the owner of a residential property. Therefore, a nominee or bare trustee corporation that holds legal title to a residential property for the benefit of others must file the UHT Return. An owner also includes a person that is a life tenant under a life estate, a person that is a life lease holder, and a person that has continuous possession of the land on which the property is located for at least 20 years.
An excluded owner, such as Canadian citizens and permanent residents, is not required to file a UHT Return and not liable to pay the UHT. Other exempted owners are publicly-traded Canadian corporations, trustees of mutual fund trusts, real estate investment trusts, SIFT trusts, registered charities, universities, hospitals, and Indigenous governing bodies.
The UHT Act provides a number of statutory exemptions that may apply to owners who need to file a UHT Return but may not be liable to pay the UHT. These exemptions depend on the type of owner, the occupant of the property, the availability of the property, or the location and use of the property. The UHT is not payable by specified Canadian corporations, meaning Canadian corporations where less than 10% of the voting shares and equity value are owned by non-Canadian individuals or corporations. It is also not payable by an individual who died during the calendar year or the previous year or a person who was a co-owner with a deceased owner.
The UHT is not payable where the property is the primary place of residence of the owner, their spouse or common-law partner, or their child while the child is a student. It is also not payable if the property is occupied for at least 180 days in the calendar year by an arm’s length individual under a lease, a non-arm’s length individual under a lease who pays fair rent, an individual who is the owner or the owner’s spouse or common-law partner who has a Canadian work permit, or a Canadian citizen or permanent resident who is the spouse, common-law partner, parent or child of the owner.
The UHT is not payable if the property is not suitable for year-round use as a place of residence or seasonally inaccessible because public access is not maintained year-round.
Calculation of the UHT
To calculate the UHT for a residential property that is vacant or underused, the tax is determined by 1% of the home’s taxable value or 1% of its most recent sale price, whichever is higher. In addition, property owners can opt to file an election between January 1 and April 30 of the following year to use the property’s fair market value (FMV) to calculate the UHT, as long as they provide a written appraisal to the Canada Revenue Agency upon request. If there are multiple owners of a property, each owner will be responsible for paying UHT based on their share of ownership.
What are the UHT filing requirements and penalties?
Failure to file a UHT return by April 30 of the following year, when required, could result in a penalty of at least $5,000 for individuals and $10,000 for other entities, such as Canadian corporations, partnerships, and trusts.
If an owner qualifies for an exemption but is not an excluded owner, the UHT return still must be filed, even if an exemption applies and no UHT is owed. The penalty for late filing will apply.
This article is a general discussion of certain tax and accounting matters and should not be relied upon as tax or accounting advice. If you require tax or accounting advice, we would be pleased to discuss the issues in this article with you.
