On January 1, 2022, the government of Canada’s Underused Housing Tax (UHT) came into effect. The act is the government’s attempt to discourage foreign ownership of vacant residential properties that remain empty while there is a housing crisis across the country. Therefore, it will mostly affect non-Canadian citizens and non-permanent residents who own residential properties in Canada. But, if you are a Canadian citizen and you own residential property (ie, your own home or property you rent) there are steps you will need to take when filing your 2022 taxes this April. Here is what you should know.
What is the Underused Housing Tax?
The Underused Housing Tax requires anyone that owns Canadian residential properties to file an annual return with the Canada Revenue Agency (CRA) by April 30. Any non-excluded owner is required to pay a 1% tax of the value or fair market value of any residential property owned that is considered underused or vacant. Most residential properties that are empty for more than 180 days in the calendar year are considered to be vacant.
Who does this apply to?
The CRA is classifying Canadian residential property owners into two categories; affected and excluded owners. This classification will determine if you have any obligations or liabilities under the act.
If you meet one or more of these requirements you are considered an affected owner:
Not a Canadian citizen or permanent resident
A Canadian citizen or resident owning a residential property as a trustee of a trust
Anyone (Canadian citizen or not) that owns a residential property as a partnership
Canadian corporations that do not list shares on a Canadian stock exchange designated for Canadian income tax purposes
Canadian corporations without share capital
Affected owners have obligations under the Underused Housing Tax Act for every residential property owned in Canada. This includes paying the UHT per property unless you qualify for an exemption for the calendar year. Jump to details about exemptions.
If you meet one or more of these requirements you are considered an excluded owner:
A Canadian citizen or permanent resident (unless included in the list of affected owners above)
Anyone that owns a residential property as a mutual fund trustee, real estate trustee or Specified Investment Flow-Through (SIFT) trustee for Canadian income tax purposes.
A Canadian corporation with shares listed on a Canadian stock exchange
A Cooperative housing corporation for Canadian GST/HST purposes
A Registered charity for income tax purposes
An Indigenous governing body, or corporation exclusively owned by an Indigenous governing body
Anyone that qualifies as an excluded owner has no obligations or liabilities under the Underused Housing Tax Act but still must file an Underused Housing Tax return for the calendar year.
Who is Exempt:
Exemptions for affected owners are based on several factors. If you fall under one of these categories, you may be exempt from the tax for a calendar year.
Type of Owner
new owners (purchased within the calendar year)
a deceased owner or a co-owner or personal representative of a deceased owner
specified Canadian corporation
a partner or trustee of a specified Canadian corporation
Location/use of property
Residential properties located in an eligible area of Canada that is utilized by the owner or the spouse/common-law partner of the owner for at least 28 days in the calendar year, such as vacation homes in remote locations. Use this tool to help determine if your property qualifies for exemption.
Availability of the property
newly constructed homes
seasonally inaccessible properties
properties that were uninhabitable for at least 60 days due to disasters and/or hazardous conditions in the calendar year
properties that were uninhabitable for at least 120 days due to renovations provided the renovations did not experience unreasonable delays. (Can only be claimed once every 10 years)
The occupant of the property
In order to be exempt from the Underused Housing Tax the residential property must be occupied for more than 180 days in a calendar year. The occupant can be:
the owner, their spouse/common-law partner, or their child if they possess a work permit or are attending a designated learning institution
the owner’s spouse/common-law partner, parent or child provided they are a Canadian citizen or permanent resident.
How will I know how much I owe?
To calculate the tax owing on a UHT return take the value of the residential property and multiply it by .01 (1%). If the ownership of the property is joint, multiply the result by the percentage of ownership.
The general rule for determining the value of the residential property is to use the value used for property taxes. If an affected owner wishes to use the fair market value of the property they must file an election with the CRA. An appraisal of the property will be required and needs to be conducted by an accredited, professional real estate appraiser with no ties to the owner. What if I don’t file on time?
What if I don't file on time?
Affected owners must file for EACH residential property owned, even if the property qualifies for an exemption for the calendar year. The penalties for failing to file and/or pay an Underused Housing Tax return by the April 30 deadline are significant. Individual owners could face a minimum penalty of $5,000 and the minimum jumps to $10,000 for corporations.
For most Canadians, the Underused Housing Tax will be just another form that they need to fill out in order to be exempt from the tax. However, it is important to know the qualifications for exclusion.
Affected owners should know that even if their property is exempt and no tax is owed, records must be kept to support the exemption or it may be disallowed.
If you are unsure if you or your business are an affected or excluded owner, please reach out and we will be happy to help you navigate this new and slightly confusing tax.