Underused Housing Tax in Canada

Underused housing tax is a policy aimed at encouraging efficient use of residential properties and mitigating housing shortages. The concept revolves around taxing property owners who leave their dwellings vacant or underutilized for extended periods. The underlying idea is to incentivize homeowners to put their properties to more productive use, thereby increasing the overall housing supply.

The “Underused Housing Tax” or UHT is an annual federal 1% tax on the ownership of vacant or underused housing in Canada based on the property’s “specified value”. The UHT took effect on January 1, 2022.

The tax generally applies to the foreign national owners of housing in Canada. However, UHT also applies to some Canadian owners such as partners, trustees, and corporations.

A property owner must file an UHT return for each of your properties in Canada for which all three of the following conditions are met on December 31:

The property is residential property
You are an owner of the residential property
You are determined to be an affected owner

With the implementation of “Underused Housing Tax”, discussed below are specific requirements for filing a return and paying the tax.

1. Residential Property Owners:

Affected owner – must file an annual return and pay the tax unless owner is qualified for an exemption.
- Affected owners includes, but not limited to the following:
  - A foreign national (that is, an individual who is not a Canadian citizen or permanent resident)
  - An individual who is a Canadian citizen or permanent resident, and who owns a residential property in Canada 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, real estate investment trust, or specified investment flow-through (SIFT) trust for Canadian income tax purposes)
  - An individual who is a Canadian citizen or permanent resident, and who owns a residential property as a partner of a partnership
  - A corporation that is incorporated outside of Canada
  - A Canadian corporation whose shares are not listed on a Canadian stock exchange designated for Canadian income tax purposes
  - A Canadian corporation without share capital
Excluded owner – you have no obligations under the UHT act.
- Excluded owners includes, but not limited to the following:
  - An individual who is a Canadian citizen or permanent resident (unless included in the list of affected owners)
  - Any person that owns a residential property as a trustee of a mutual fund trust, real estate investment trust, or specified investment flow-through (SIFT) trust 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, hospital authority, municipality, para-municipal organization, public college, school authority, or university for Canadian GST/HST purposes
  - An Indigenous governing body or a corporation wholly owned by an Indigenous governing body
  - His Majesty in right of Canada or a province or an agent of His Majesty in right of Canada or a province

2. Filing Requirements:

Affected owner must file a separate annual UHT return for each residential property own on December 31 for the calendar year
UHT return is due by April 30 of the following calendar year
Affected owner must file the UHT return even if you qualify for an exemption

3. Tax Owing:

UHT is an annual federal 1% tax based on the residential property’s specified value

4. Exemptions from Paying UHT:

Affected owners may qualify for exemptions based on certain conditions, such as:
- Type of owner
  - Specified Canadian corporation
  - Partner of a specified Canadian partnership, or a trustee of a specified Canadian trust
  - New owner in the calendar year
  - Deceased owner, or a co-owner or personal representative of a deceased owner
Used as a primary residence or occupied for at least 180 days in the calendar year and cannot be shorter than one month for each period
Availability of the residential property
- Newly constructed
- Not suitable to lived in year-round or seasonally inaccessible
- Uninhabitable foe a certain number of days due to disaster, hazardous conditions or a renovation
Affected individual owner of a vacation property located in an eligible area of Canada used by the owner or spouse for at least 28 days in the calendar year

5. Penalties and Interest for failing to file return on time:

Penalties for affected individuals – $5,000
Penalties for affected corporations – $10,000
Interest is also charged if tax payments are not paid by April 30th

Residential property owners that are affected by the Underused Housing Tax (UHT) have until April 30, 2024, to file their returns and pay the tax for the 2022 calendar year without being charged penalties or interest.

Resources:

CRA Website

https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html
https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax/complete-return.html

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