In June of 2022, the Underused Housing Tax (UHT) Act received royal assent. The UHT is an annual 1% tax on the ownership of vacant or underused residential housing in Canada and applies after January 1, 2022. The payment of the UHT usually applies to non-resident, non-Canadian owners. However, even as a Canadian resident, you may still have an obligation to file the UHT Return.
Failure to file a 2022 UHT return by April 30, 2023, is associated with penalties of a minimum of $5,000 for individuals and $10,000 for corporations, so an understanding of how this tax may apply to you and your ownership of residential homes is extremely important.
Affected properties are considered to be residential properties and include detached homes, detached homes with up to three units, semi-detached homes, townhouses, and residential condominium units.
The Requirement to File an Underused Housing Tax (UHT) Return
All owners of residential properties are required to file a UHT return for each residential property owned unless they meet the requirements of being an excluded owner.
Excluded owners who are not required to file a UHT return include:
- Canadian citizens and permanent residents of Canada
- Corporations listed on a Canadian stock exchange
- Registered charities
- Cooperative housing corporations
- Indigenous governing bodies or corporations owned by Indigenous governing bodies
- Municipalities or corporations owned by municipalities
- Government of Canada or an agent of the Government of Canada
- Universities, public colleges, school authorities, hospital authorities
If you own residential property in Canada through a private corporation, a partnership, a trust, or do not otherwise meet one of the above exemptions, you will be subject to filing an annual UHT return.
**Ownership refers to who or what owners are listed in the land registry system.**
The Requirement to Pay the Underused Housing Tax (UHT)
Although not exempt from filing a UHT return, you may be exempt from paying UHT as either an exempt property or an exempt owner.
A property is exempt under the following conditions:
1. Used as a primary place of residence or for qualifying occupancy: If the dwelling is the primary place of residence of the owner, or the owner’s spouse, common-law partner or a child of the owner, their spouse or common-law partner if the child occupies the dwelling for authorized study at a designated learning institution.
If the dwelling is used for a qualifying occupancy, the number of days during the calendar year in a qualifying occupancy is 180 days or more. A qualifying occupancy period is at least one month in a calendar year during which one of the following individuals occupies the dwelling:
- An individual who deals at arm’s length with the owner and with any spouse or common-law partner of the owner under an agreement evidenced in writing;
- An individual who does not deal at arm’s length with the owner or with any spouse or common-law partner of the owner under an agreement evidenced in writing and for consideration that is not below the fair rent for the residential property;
- An individual who is the owner or the owner’s spouse or common-law partner, who is in Canada to pursue authorized work under a Canadian work permit and who occupies the dwelling unit in relation to that purpose;
- An individual who is a spouse, common-law partner, parent or child of the owner, and a citizen or permanent resident.
2. Limited Use: The property is not suitable for year-round use or is seasonally inaccessible because public access is not maintained year around. Additionally, limited use expands to an uninhabitable period of more than 60 days due to disaster or hazardous conditions or at least 120 consecutive days due to renovations that have not been reoccurring in any of the nine prior calendar years.
3. Newly Built Properties: Newly constructed properties are exempt if they meet one of the following criteria:
- The residential property construction is not substantially completed before April of the calendar year.
- The construction of the residential property is substantially completed in January, February or March of the calendar year, the residential property is offered for sale to the public during the calendar year, and the residential property has never been occupied by an individual as a place of residence or lodging during the calendar year
An owner may be exempt under the following conditions:
1. New Home Buyer: The person became an owner of the residential property in the calendar year and was never an owner in the prior nine calendar years.
2. Deceased Individuals: If an owner of a residential property passes away, their legal representative would be exempt for the calendar year. Further, if an owner of a property dies and has at least 25% interest in the property, the other owner would be exempt for the current and subsequent calendar year.
3. Specified Canadian Corporation: The owner is a Canadian Corporation, of which Canadian Citizens hold 90% or more of the votes and value of the corporation.
4. Specified Canadian Partnership or Specified Canadian Trust: The person owns the property in their capacity as a partner of a Specified Canadian partnership or as a trustee of a trust that is a specified Canadian Trust.
Calculating the Underused Housing Tax (UHT)
The UHT is calculated by multiplying the tax value of the property by 1%. The tax value of the property is the greater of the following two amounts:
- The value of the residential property is established by an authority that has the power to establish the assessed value of the property for purposes of calculating a property tax
- The residential property’s most recent sale price on or before December 31 of the calendar year for which the UHT return is being filed
Contact Ford Keast LLP Right Away if you are an Affected Owner of the Underused Housing Tax (UHT)
Although the payment of UHT is not overly invasive, the annual filing requirement is far-reaching and impacts many property owners. If you believe that any residential property you own may be impacted and, as the owner, you think you may have a requirement to file a UHT return, don’t hesitate to get in touch with our Manager of Tax Services, Laura Platt or connect directly with your Ford Keast LLP advisor for guidance, either online or at (519) 679-9330 for personal assistance.