The Underused Housing Tax (UHT) took effect on January 1, 2022, and levies a 1% tax on the value of vacant or underused residential housing in Canada. This new tax primarily targets non-resident, non-Canadian owners of vacant or underused residential housing. However, Canadian owners of residential housing may also have reporting obligations and liabilities under the UHT. The tax has flown under the radar of many taxpayers as, after it was originally announced in the 2021 federal budget, full details about how it operates have only recently been released. Taxpayers should note initial UHT returns must be filed by April 30, 2023.
Residential housing for purposes of the UHT includes detached homes, semi-detached homes, units in a rowhouse or townhouse, residential condominiums, cottages, cabins, and chalets.
Anyone considered to be an excluded owner of Canadian residential property has no liability or reporting obligations under the UHT. There is a lengthy list of excluded owners, including:
- An individual who is a Canadian citizen or permanent resident;
- Any person (including individual Canadian citizens or permanent residents) owning residential property as a trustee of a mutual fund trust, real estate investment trust (REIT), or specified investment flow-through trust (SIFT) for Canadian income tax purposes;
- A Canadian corporation with shares listed on a designated Canadian stock exchange;
- A registered charity for Canadian income tax purposes;
- A cooperative housing corporation under the GST/HST legislation;
- A para-municipal organization for GST/HST purposes; and
- An Indigenous governing body or a corporation wholly owned by it.
Any person who owns residential housing and does not qualify as an excluded owner is known as an “affected owner” and must file a UHT return. Generally, you are an affected owner if you are:
- An individual, but not a Canadian citizen or permanent resident of Canada;
- A Canadian citizen or permanent resident individual owning residential property as a trustee of a trust (other than as a personal representative of a deceased individual or as a trustee of a mutual fund trust, REIT, or SIFT) or as a partner of a partnership;
- Any person owning residential property as a partner of a partnership;
- A corporation incorporated outside Canada;
- A Canadian corporation that does not list its shares on a designated Canadian stock exchange; or
- A Canadian corporation without share capital.
Under the UHT, affected owners must file a return for each residential property owned on December 31 of a given year and pay the required tax, unless their ownership of residential property qualifies for an exemption.
Exemptions from the UHT are available depending on the type of owner, the availability of the residential property, the use and location of the residential property, and the occupant of the residential property. Note that affected owners are required to file a UHT return even if they qualify for an exemption.
The UHT comes with significant penalties for failing to file a return as required. A minimum $5,000 penalty may be applied to individuals, and corporations may be subject to a minimum $10,000 penalty. Again, the first UHT return filing deadline of April 30, 2023, is quickly approaching.
However, there is good news on the penalty front, as the Canada Revenue Agency (CRA) recently announced filing relief for affected owners. Under this transitional relief, which is expected to apply for the first year only, the application of interest and penalties will be waived for late 2022 UHT returns and tax payments, provided the return is filed and any associated tax liability is paid by October 31, 2023. Despite the available relief, Ryan encourages anyone with obligations under the UHT to file their return and pay any tax owing on time.
Further details on the UHT can be found on the Government of Canada website at Underused Housing Tax. In addition, the CRA has released 15 UHT Notices providing detailed technical information on the tax at Underused housing tax notices.
To learn more about the UHT, listen to Episode 20 of Ryan Talks Tax podcast where two of our industry-leading professionals from the Client Support Services team discuss the intention of the UHT and how housing owners are affected by the UHT.
If you have any questions or concerns about the application of the new UHT and its filing obligations, please contact the Ryan TaxDirect® line at firstname.lastname@example.org or 1.800.667.1600.