Canada’s New Underused Housing Tax – What You Need to Know Before the Filing Deadline on April 30

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Update: On October 31, 2023, the Minister of National Revenue announced that owners affected by the Underused Housing Tax (UHT) will have until April 30, 2024, to file their returns for the 2022 calendar year without being charged penalties or interest.  Specifically, the Canada Revenue Agency will waive the application of penalties and interest for any late-filed UHT returns and for any late-paid UHT payable for the 2022 calendar year, provided the return is filed and the UHT is paid by April 30, 2024. 

Update: On March 27, 2023, the Minister of National Revenue announced transitional relief to affected owners who may have filing or payment obligations under the Underused Housing Tax Act (UHTA). The filing and payment deadline for the 2022 calendar year remains April 30, 2023 but the application of penalties and interest under the UHTA for the 2022 calendar year will be waived for any late-filed underused housing tax (UHT) return and for any late-paid UHT payable, provided the return is filed or the UHT is paid by October 31, 2023.


Effective for the 2022 calendar year, the new Underused Housing Tax (“UHT”) is an annual 1% tax on the value of vacant and underused residential properties in Canada owned by owners who are non-resident, non-Canadian, or in certain circumstances, Canadian owners.

All owners (“affected owners”) who are subject o the UHT (other than “excluded owners” as discussed below) are required to file a UHT return for each residential property that the person owns in Canada on December 31. Such affected owners must also pay the UHT unless their ownership qualifies for an exemption for the calendar year (as discussed below). Even if an affected owner’s ownership qualifies for an exemption, the person must still file an UHT return for the calendar year.

The 2022 UHT return is due on April 30, 2023. Any payment of UHT owing is also due on April 30, 2023.

If the person is an affected owner who shares ownership of a residential property with another affected owner (with more than 10% ownership), each of them must file separate UHT returns.

It is very important that an affected owner file the UHT return before April 30, 2023 as there are significant penalties for the failure to file an UHT return when it is due. Affected owners who are individuals are subject to a minimum penalty of $5,000. Affected owners that are corporations are subject to a minimum penalty of $10,000.

What are Residential Properties?

Residential properties situated in Canada that could be subject to the UHT include detached houses or similar buildings with up to three dwelling units (e.g., duplex, triplex), and semi-detached homes, row house units, and condominiums or similar premises.

Who are Owners?

The owner of a residential property for UHT purposes is the registered owner of the property as shown on the land registration system as opposed to the beneficial owner. As such, all persons that hold legal title of the property such as a nominee or bare trustee corporation is required to file the UHT return (unless they are an “excluded owner”).

An owner also includes the following types of arrangements:

  • a person that is a life tenant under a life estate;
  • a person that is a life lease holder; or
  •  a person that has, under a long-term lease, continuous possession of the land on which the property is situated.

Who are Excluded Owners?

The following are referred to as “excluded owners” and are not required to file a UHT return.

  • An individual who is a Canadian citizen or a permanent resident of Canada;
  • A corporation incorporated in Canada and listed on a Canadian stock exchange;
  • Any person that owns a residential property as a trustee of a mutual fund trust, real estate investment trust, or specified investment flow-through trust (SIFT) for Canadian income tax purposes;
  • Registered charities for Canadian income tax purposes;
  • Cooperative housing corporations for Canadian GST/HST purposes;
  • 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; and
  • Universities, public colleges, school authorities, hospital authorities.

Private corporations, partnerships, and trusts are not excluded owners and, therefore, are subject to filing an annual UHT return if they own a residential property, even if there is no UHT owing.

What are the Exemptions for UHT?

There are various exemptions that could be claimed by an affected owner when filing the UHT return. Affected owners who qualify for any of the exemptions listed below are still required to file a return even if exempt from paying the UHT.

The ownership of a residential property may be exempt for a calendar year if the owner is:

  • a specified Canadian corporation (Canadian corporations where <10% of the voting shares are owned by non-Canadian individuals or corporations);
  • a partner of a specified Canadian partnership (a partnership each member of which is an excluded owner or a specified Canadian corporation);
  •  a trustee of a specified Canadian trust (a trust under which each beneficiary having a beneficial interest in the residential property is an excluded owner or a specified Canadian corporation);
  • a new owner in the calendar year; or
  • a deceased owner, or a co-owner or personal representative of a deceased owner.

The ownership of a residential property may be exempt for a calendar year if the property is:

  • newly constructed;
  • not suitable to be lived in year-round, or seasonally inaccessible;
  • uninhabitable for a certain number of days because of a disaster or hazardous conditions rendering the property uninhabitable for a period of at least 60 consecutive days in the calendar year;
  • under renovations for a period of at least 120 consecutive days in the calendar year; or
  • a vacation property located in an eligible area of Canada and used by the owner or his or her spouse for at least 28 days in the calendar year (this exemption does not apply to owners who are not individuals).

The ownership of a residential property may be exempt for a calendar year in either of the following situations:

  • it is the primary place of residence for the owner or his or her spouse or common law partner, or for their child who is attending a designated learning institution; or
  • at least 180 days in the calendar year are included in one or more qualifying occupancy periods for your ownership of the residential property:
    • A qualifying occupancy period is at least one month in a calendar year during which one of the following qualifying occupants has continuous occupancy of the residential property:
      • an individual with a written contract who deals at arm’s length with the owner and his or her spouse or common law partner;
      • an individual with a written contract who does not deal at arm’s length with the owner and his or her spouse or common law partner, and who pays at least fair rent for the property;
      • the owner or his or her spouse or common law partner, who has a Canadian work permit; or
      • the owner or his or her spouse or common law partner, a parent, or a child who is a Canadian citizen or permanent resident.

How to File the UHT Return?

An affected owner of a residential property in Canada on December 31 must file an UHT return for the calendar year. The UHT return can be filed either using electronic filing or by mail.

However, in order to file the return, the affected owner must obtain a tax identification number with the Canada Revenue Agency as follows:

  • Individuals:
    • a social insurance number (SIN); or
    • an individual tax number (ITN); and
  • Corporations and other business entities: a federal business number (BN) and an UHT (RU) program account number.

Many non-residents of Canada may not already have a Canadian tax identification number. Such affected owners will need to first apply for an individual tax number or a business number and an UHT program account number before they are able to file the UHT return. The application process may take weeks to process, so we recommend affected owners to begin applying for the tax identification numbers as soon as possible to ensure that they have the required identification number in time for filing the UHT return due on April 30, 2023.

In addition to the tax identification number, to complete the UHT return, the affected owner would require the following information:

  • Personal identification information and citizenship status;
  • If the property is owned by a partnership or trust, the relevant tax account numbers;
  • Property ID used in the land registration system;
  • Property tax or assessment roll number (as applicable);
  • Residence type (detached, semi-detached, etc.);
  • Property value; and
  • Purchase date and ownership percentage.

How to Calculate UHT

If the ownership of a residential property does not qualify for an exemption from the UHT for a calendar year, the affected owner must calculate the amount of UHT owing for the calendar yea and make payment accordingly.

The UHT is calculated by multiplying the taxable value of the residential property (which is generally the greater of: (i) its value as assessed by the government; and (ii) the property’s most recent sale price on or before December 31 of the calendar year) by the 1% tax rate, then multiply by the ownership percentage of the property.

Instead of using the taxable value, an affected owner may elect to use the fair market value of the property at any time on or after January 1 of the calendar year and on or before April 30 of the following calendar year. The fair market value must be supported by an appraisal.

Keeping Records

Affected owners must keep records to support the determination of their obligations and liabilities. Even if their ownership is exempt and not subject to payment of the tax, the owner must still keep records. If the affected owner claims an exemption but do not have adequate records to support that exemption, the Canada Revenue Agency may disallow the exemption and require payment of UHT along with penalties and interest.

Conclusion

The deadline to file the UHT return is fast approaching. As it will take time to gather the required information, determine if any exemptions are available, and obtain a tax identification number (if necessary), we recommend starting the process as soon as possible.

Please do not hesitate the contact the authors should you have any questions or need any assistance with complying with the UHT.

Written by : Kevin Yip and Puyang Zhao

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Kevin Yip has a broad income tax practice with expertise in all aspects of domestic and international tax planning, corporate reorganizations, and mergers and acquisitions. Kevin also regularly assists clients in transfer pricing, real estate transactions, corporate financing and executive compensation plans.