Canada’s newest Underused Housing Tax (UHT) was enacted last summer, meaning some residential property owners (i.e., those not considered “excluded owners”) are expected to file a UHT return and pay the UHT starting this year. Since 2023 will be the first year the CRA will collect the tax, there are still many uncertainties when it comes to the UHT. Here’s what you need to know:
Understanding the tax:
The UHT affects certain owners of residential housing considered vacant or underused. It is calculated at 1% of the taxable value of the property. The taxable value is the greater of:
- The assessed value established by a property tax authority (e.g., municipal property tax value), and
- The most recent sale price on or before December 31 of the calendar year.
For owners who share ownership of a property, the UHT would be multiplied by that owner’s ownership percentage as indicated in the land registration system.
Those who are affected must file an annual return and pay the UHT by April 30 of the following year.
Properties subject to the UHT include:
- Semi-detached houses
- Detached dwellings (containing up to three dwelling units)
- Rowhouse units
- Residential condominiums
- Any other residential dwelling owned as a separate unit
It’s important to note that owners with multiple residential properties are expected to file a separate eight-page form for each property. Due to the form’s length and complexity, it’s helpful to speak to a trusted accountant before filing.
UHT exemptions: Who is considered an excluded owner?
This new tax includes several exclusions and exemptions. An excluded owner does not have to file or pay the UHT. In order to be considered excluded, you must fall into one of the following categories on December 31 of a calendar year:
- You are an individual who is a Canadian citizen or permanent resident, unless you are an owner by virtue of being a trustee of a trust (with some exceptions) or as partner in a partnership
- You are a publicly traded corporation incorporated in Canada
- You are a registered charity, an Indigenous governing body or a cooperative housing corporation
- You are a municipal organization (or any other government body or public institution)
- You have title to the property through your capacity as a trustee of various widely held trusts
An owner that is not considered an excluded owner is an affected owner and, at the very least, will have to file an annual return, even if no UHT is owed.
Because of the complicated nature of these rules, certain persons may be considered affected owners without realizing it. For example, those owning property in their capacity as trustee of a personal trust or through an interest in a partnership may be considered affected owners. Furthermore, privately held Canadian corporations and corporations incorporated outside of Canada may also be considered affected owners. If you are unsure of you or your corporation’s status, it’s essential to speak to your advisor.
Exemptions for affected owners
If you don’t fit into any of the above exclusions, you are seen as an affected owner. While you may still qualify for a tax exemption, you must file an annual return to claim these potential exemptions. They include the following:
- The residential property is your primary place of residence, or the primary place of residence of your spouse, common-law partner or child.
- Your property was not vacant for at least 180 days in a calendar year, provided a “qualifying occupant” (a defined term) occupies the dwelling.
- Tenants are unable to live in your property year-round as it’s inaccessible in certain seasons.
- Your property was uninhabitable due to hazardous conditions for at least 60 consecutive days. This is also true if your property was uninhabitable for 120 consecutive days due to renovation or construction.
- Your property was built after March of the calendar year and was put up for sale publicly afterwards.
- You acquired the property that calendar year.
- The owner of the property passed away. In terms of jointly owned property, the surviving owners are eligible as long as the deceased owned at least 25 percent.
- Specified Canadian corporations are exempt. This would include a Canadian corporation with less than ten percent foreign ownership.
- Properties owned by partners of a partnership may be exempt if all members are excluded owners or specified Canadian corporations.
- If a property was owned by a trustee, and all beneficiaries of the trust (that have interest in the property) are either specified Canadian corporations or excluded owners, the trustee is exempt.
- Your property is located in a prescribed area based on census data. The owner, spouse or common-law partner must have lived in this property for a minimum of 28 days in the calendar year.
Penalties and administrative requirements
Affected owners who don’t file the UHT return when required can face significant fines:
- At least $5,000 for individuals,
- At least $10,000 for other types of affected owners (e.g. corporations)
Penalties could be greater, depending on the value of the property and if the UHT return is filed late. Furthermore, owners who own multiple properties would face even greater fines as the penalties apply for each unfiled UHT return, and a return is due for each property.
Affected owners also need to ensure they keep proper records for a minimum of six years from the end of the relevant year to support the position taken with respect to the UHT.
A guiding hand: supporting owners
Navigating the complexities of the UHT’s exemptions and filing requirements can be a lengthy process with expensive consequences. Our experienced team at Zeifmans can help ensure owners of residential properties avoid financial penalties. Contact us to get started.