Underused Housing Tax – Affects Canadians Too
Canada’s new Federal Underused Housing Tax (“UHT”) is in effect for owners of Canadian residential properties as of December 31, 2022. Originally intended for non-Canadian owners, some Canadian citizens and permanent residents (“Canadians”) may be subject to this tax unless they timely file UHT tax returns.
Intended for Non-Canadians
The law is aimed at non-Canadian citizens and non-Canadian permanent residents potentially subjecting them to a 1% tax on the assessed value of their properties. Exemptions exist in situations where properties have tenants, properties are newly acquired or under construction and for properties in certain rural areas where the owners use the property personally. Non-Canadian citizens and non-Canadian permanent residents are required to annual file a UHT form to claim their exemption.
Impacts Canadians Too
Canadians who own Canadian residential property are exempt from UHT tax, however unless they are “excluded owners” under UHT law, they are required to annual file UHT returns to claim their exemption. For individual owners, the definition of excluded owners generally includes Canadian citizens and permanent residents that directly own Canadian residential property. However, where individuals own the property in their capacity as a trustee of a trust or partner of a partnership, they are not excluded owners but “affected owners.” Affected Owners are required to file an annual UHT tax return to report their ownership and claim their exemption to the tax.
Impacts Canadian Corporations as Well
Many Canadians own shares in private Canadian corporations that own Canadian residential properties. These Canadian corporations are required to file the annual UHT tax return to claim applicable exemptions.
Examples
UHT tax returns are required in the following situations:
- Canadians who own their homes in a trust, such as seniors who have set up Joint Spousal Trusts or Alter Ego Trusts;
- Canadians who hold residential property in title for another person where it results in a trust relationship;
- Canadians who own their property as a partner in a partnership;
- Canadians that own shares in a Canadian corporation that owns Canadian residential property.
Penalties for Failure to File
Individuals who fail to timely file the UHT return are subject to a penalty of $5,000 and a $10,000 penalty for owners other than an individual. Canadians who fail to file the form by December 31st of the following year will also lose their ability to claim the exemption from UHT. Normally the UHT return is due on April 30th of the year following. For the first year of filing, CRA has granted an automatic extension of time to file. So long as the 2022 year UHT return is filed on or before October 31, 2023, no late filing penalties will apply.
Resources
Our January 2023 webinar presents more detail on UHT and other Canadian provincial and city vacancy taxes.
In an Andersen blog in January 2023, Krista Rabidoux wrote about UHT 2023
Canada Revenue Agency’s website contains links to the forms, instructions, and guides.
