02/19/2023
Underused Housing Tax. Does that apply to you?
WHAT IS UNDERUSED HOUSING TAX (UHT)?
The Underused Housing Tax is an annual 1% tax on the ownership of vacant or underused housing in Canada that took effect on January 1, 2022.
WHO WILL HAVE TO PAY THIS TAX?
Generally, the underused housing tax is payable by non-resident non-Canadian owners of vacant or underused housing in Canada. Most Canadian owners of residential property are excluded owners and, therefore, do not have any obligations and liabilities under the UHTA. However, the underused housing tax is payable by certain Canadian owners of housing in limited situations. For more information, refer to the Important information for Canadian owners of housing section in this notice.
WHAT IS THE EFFECTIVE DATE?
The underused housing tax took effect on January 1, 2022.
Starting with the 2022 calendar year and for each following calendar year, owners of housing in Canada must determine their obligations and liabilities under the UHTA. Some affected owners must file an annual return and pay the underused housing tax. Other affected owners must file an annual return but not pay the underused housing tax. Excluded owners do not have to file an annual return or pay the underused housing tax.
WHAT ARE THE CONDITIONS FOR FILING A RETURN?
You have to file a return, Form UHT-2900, Underused Housing Tax Return and Election Form, for each of your properties in Canada for which all of the following conditions are met on December 31 of a calendar year:
• the property is a residential property.
• you are an owner of the residential property.
• you are not an excluded owner of the residential property.
WHO IS AFFECTED OWNER AND EXCLUDED OWNER?
Excluded Owner:
Excluded owners are Canadian persons that are excluded from the tax. These persons do not have to file a return or pay the underused housing tax.
An excluded owner includes, but is not limited to:
• an individual who is a Canadian citizen or permanent resident - unless included in the list of affected owners (discussed later)
• any person (Individual, Corporation or Trust) - including an individual who is a Canadian citizen or permanent resident - that owns a residential property as a trustee of a mutual fund trust, real estate investment trust, or specified investment flow-through trust (SIFT) for Canadian income tax purposes.
• a Canadian corporation whose shares are listed on a Canadian stock exchange designated for Canadian income tax purposes.
• a registered charity for Canadian income tax purposes
• a cooperative housing corporation for Canadian GST/HST purposes
• an Indigenous governing body or a corporation wholly owned by an Indigenous governing body.
Affected Owner:
If you are not an excluded owner, CRA refers you as an affected owner and you have obligations under the Underused Housing Tax Act for your residential property in Canada. An affected owner includes, but is not limited to:
Examples of affected owners
The following are examples of individuals who are affected owners of residential property and, therefore, are persons that must file an annual return:
• individuals who are not citizens or permanent residents of Canada and who are owners of residential property in Canada in any capacity.
• individuals who are citizens or permanent residents of Canada and who are owners of residential property in Canada in either of the following capacities:
• as a trustee of a trust (other than as a personal representative of a deceased individual and other than as a trustee of a mutual fund trust, real estate investment trust or SIFT trust for Canadian income tax purposes)
• as a partner of a partnership
The following are examples of persons (other than individuals) that may be affected owners of residential property and, therefore, may be persons that have to file an annual return:
• corporations that are incorporated otherwise than under the laws of Canada or a province and that are owners of residential property in Canada in any capacity.
• corporations that are incorporated under the laws of Canada or a province whose shares are not listed on a Canadian stock exchange designated for Canadian income tax purposes and that are owners of residential property in Canada in any capacity
• corporations that are incorporated under the laws of Canada or a province without share capital and that are owners of residential property in Canada in any capacity
If you are a corporation mentioned above, be sure to check whether your corporation may be excluded elsewhere in the list of excluded owners.
DO I HAVE ANY ACTION IF I AM A CANADIAN CITIZEN?
A Canadian citizen or permanent resident will have to file a declaration if they are an owner of the residential property in their capacity as a trustee of a trust (other than a personal representative in respect of a deceased individual) or as a partner of a partnership.
Note: It is unclear at this point if co-ownership of a property will constitute a partnership for purposes of the UHT. At this point, it looks like perhaps co-owners of a residential property who use it for a farm, rental property or business will have to file a return. Hopefully CRA will provide more guidance on this very soon. We do know that co-owners who have to file will each have to file a return.
WHAT IF I DON’T FILE THE RETURN BECAUSE I DON’T HAVE ANY UHT LIABILITY?
If you are required to file the Underused Housing Tax Return and you fail to file the return, there will be significant penalties. Affected owners who are individuals are subject to a minimum penalty of $5,000. Affected owners that are corporations are subject to a minimum penalty of $10,000. The penalties are for not filing the return and irrespective to the tax liability.
In addition to the minimum above penalties, add:
i. 5% of the tax calculated for the calendar year, plus,
ii. 3% of the tax calculated multiplied by the number of complete months that the return is late.
If an affected owner fails to file a return by December 31 of the following calendar year, the 5% and 3% penalties will be calculated based on the tax that would be payable if most exemptions were not available.
WHAT IS THE DUE DATE OF FILING TAX RETURN?
April 30th of the following year.
The first UHT return due date is May 1, 2023, because April 30th is a Sunday.
WHAT ARE THE EXEMPTIONS AVAILABLE, IF ANY?
Exemptions
Your ownership of a residential property may be exempt from the Underused Housing Tax for a calendar year depending on:
• the type of owner you are.
• the availability of the residential property
• the location and use of the residential property
• the occupant of the residential property
Remember if you are an affected owner of a residential property in Canada on December 31 you still have to file an Underused Housing Tax return for the residential property for the calendar year, even if your ownership qualifies for an exemption.
Exemptions based on the type of owner.
Your ownership of a residential property may be exempt for a calendar year if you are:
• a specified Canadian corporation
• a partner of a specified Canadian partnership, or a trustee of a specified Canadian trust
• a new owner in the calendar year
• a deceased owner, or a co-owner or personal representative of a deceased owner
Exemptions based on the availability of the residential property.
Your ownership of a residential property may be exempt for a calendar year if the property is:
• newly constructed
• not suitable to be lived in year-round, or seasonally inaccessible.
• uninhabitable for a certain number of days because of
o a disaster or hazardous conditions
o renovations
Exemption based on the location and use of the residential property.
Your ownership of a residential property may be exempt for a calendar year if the property is:
• a vacation property located in an eligible area of Canada and used by you or your spouse or common-law partner for at least 28 days in the calendar year.
Refer to the Underused housing tax vacation property designation tool to determine if your residential property is located in an eligible area of Canada for the purposes of this exemption.
Exemptions based on the occupant of the residential property.
Your ownership of a residential property may be exempt for a calendar year in either of the following situations:
• it is the primary place of residence for you or your spouse or common-law partner, or for your child who is attending a designated learning institution.
• at least 180 days in the calendar year are included in one or more qualifying occupancy periods for your ownership of the residential property.
A qualifying occupancy period is at least one month in a calendar year during which one of the following qualifying occupants has continuous occupancy of the residential property:
• an individual with a written contract who deals at arm’s length with you and your spouse or common-law partner.
• an individual with a written contract who does not deal at arm’s length with you or your spouse or common-law partner, and who pays at least fair rent for the property.
• you, or your spouse or common-law partner, who has a Canadian work permit.
• your spouse or common-law partner, parent, or child who is a Canadian citizen or permanent resident.
WHAT IF I OWN MULTIPLE RESIDENTIAL PROPERTIES ALONE OR CO-OWN WITH MY WIFE?
Special rule for individual owners of multiple residential properties
If between you and your spouse or common-law partner you own multiple residential properties, your ownership may not qualify for the exemptions for either primary place of residence or qualifying occupancy unless you file an election with the CRA to designate only one property for the purposes of the exemption.
If you are an affected owner who owns two or more residential properties in Canada on December 31, you must file a separate Underused Housing Tax return for each property.
If you are an affected owner of a residential property in Canada on December 31 who shares ownership with one or more co-owners who are also affected owners, each of you must file separate Underused Housing Tax returns for the property. You must each file separate returns even if your respective ownership qualifies for an exemption.
HOW CAN I CALCULATE THE TAX I OWE?
If your ownership of a residential property does not qualify for an exemption from the Underused Housing Tax for a calendar year, you must calculate what you owe for the calendar year.
The tax rate of the Underused Housing Tax is 1%. To calculate what you owe, multiply the value of the residential property by the 1% tax rate. Then multiply that result by your ownership percentage of the property.
HOW CAN I DETERMINE THE VALUE OF ANY PROPERTY?
There are two ways to determine the value of a residential property. The general rule is to use its taxable value. If you want to use its fair market value instead, you must file an election with the Agency.
An affected owner electing to use the fair market value of a residential property to calculate Underused Housing Tax owing must get an appraisal of the property. The appraisal report must be prepared by an accredited, professional real estate appraiser operating at arm’s length from the owner. The intended use of the appraisal report must be to assist in the administration of the Underused Housing Tax Act.
HOW AND WHEN DO I FILE THE RETURN?
If you are an affected owner of a residential property in Canada on December 31, you must file an Underused Housing Tax return for the calendar year. Even if your ownership of the property qualifies for an exemption and you do not owe any tax, you still must file a return. You may either use electronic filing, or you may file your return by mail.
File your return electronically.
When you file your underused housing tax electronically, you will be presented with a list of requirements to complete your submission.
File your return by mail.
Where you send it depends on:
• the place where you reside (for individuals)
• the physical address of your corporation (for corporations)
Winnipeg Tax Centre
Mail your completed return to the Winnipeg Tax Centre if the address of your residence or corporation is in one of the following:
• Countries - United States of America, United Kingdom, France, Netherlands or Denmark
• Canadian provinces or territories - Alberta, British Columbia, Manitoba, Saskatchewan, Northwest Territories, Nunavut or Yukon
• Places in Ontario - anywhere except Barrie, Sudbury, or Toronto
WHERE CAN I GET THE FORM TO FILL?
Please use the link below:
https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/uht-2900.html
FOR HOW LONG I WILL BE REQUIRED TO KEEP THE RECORDS:
If you are an affected owner of a residential property in Canada on December 31, you must file an Underused Housing Tax return for the residential property. You must also keep records to support the determination of your obligations and liabilities. Even if your ownership is exempt and you do not have to pay the tax, you must still keep records. If you claim an exemption but do not have adequate records to support that exemption, CRA may disallow it.
WHERE TO CONTACT IF I NEED MORE INFORMATION?
For general enquiries about the underused housing tax, call the applicable telephone number:
• if you are calling about a residential property that is owned by an individual and you are calling from within Canada or the United States, call 1 800 959 8281
• if you are calling about a residential property that is owned by a corporation and you are calling from within Canada or the United States, call 1 800 959 5525
To request a ruling or an interpretation related to the application of the underused housing tax, write to:
GST/HST Rulings Directorate
Canada Revenue Agency
Place de Ville Tower A 5th floor
320 Queen St
Ottawa ON K1A 0L5
Canada
Fax: 1 418 566 0319
Sources:
i. https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html
ii. https://www.taxtips.ca/real-estate/canada-underused-housing-tax.htm
iii. https://laws-lois.justice.gc.ca/eng/acts/U-0.5/
