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Underused Housing Tax (UHT) Requirements, Exemptions, and Filing Assistance

BACKGROUND

Effective January 1st, 2022, for the 2022 calendar year, the Underused Housing Tax has been implemented to address the housing crisis and promote the efficient use of residential properties in Canada.

Kindly review the attached UHT – QUICK REFERENCE CHART to determine:

• ARE YOU SUBJECT TO THE UHT RULES?
• ARE YOU REQUIRED TO FILE AN ANNUAL RETURN?
• ARE YOU REQUIRED TO PAY THE UHT?

OVERVIEW

WHAT IS THE UHT?

The UHT is intended to apply to underused housing in Canada owned directly or indirectly and wholly or partly by non-Canadians, and non-permanent residents.

UHT obligations apply to affected owners of residential property in Canada on December 31 of the relevant year. Affected owners include PRIVATE CORPORATIONS, PARTNERSHIPS and TRUSTS even if the property is exempt from tax.

The tax rate is one percent of the property’s value, and affected owners must file a UHT return annually and pay the tax by April 30 of the following year.

The UHT covers various property types, including detached houses, duplexes, triplexes, cottages, semi-detached houses, condominium units, and townhouses. However, it does not apply to quadruplexes, apartment buildings, hotels, motels, or similar establishments.

CLASSIFICATION OF OWNERS

There are three groups of owners:

• EXCLUDED OWNERS. Excluded owners are exempt from any UHT obligations.
• AFFECTED OWNERS who must file the UHT return and PAY THE TAX, and
• AFFECTED OWNERS who must file the UHT return but are ELIGIBLE FOR AN EXEMPTION from the tax.

EXCLUSIONS

WHICH OWNERS ARE EXCLUDED?

Excluded owners include Canadian citizens or permanent residents.

Individuals that hold an interest in the property as a partner of a partnership or as a trustee of a trust are carved out of this exclusion.

THE UHT AFFECTS CANADIANS AS WELL!

Certain exemptions apply, such as individuals owning residential properties.

However, CORPORATIONS, PARTNERSHIPS, and TRUSTS (excluding registered charities) must file a UHT return FOR EACH PROPERTY, even if the property is exempt from the tax. 

Although your property may be exempt from the tax (e.g., rented for more than 180 days per year, under construction, or a vacation property meeting specific criteria), a return must still be filed to state the reason for exemption.

WHAT IS THE UHT CALCULATION?

The tax rate is 1% of the higher amount between:

• The tax assessment value used by the municipality to determine your property taxes; or
• The most recent sale price (i.e., your purchase price).

PENALTIES FOR NOT FILING THE UNDERUSED HOUSING TAX RETURN

Many private Canadian corporations, trusts and partnerships will be exempt from the tax, but must still file the return (UHT-2900 Underused Housing Tax Return and Election Form), in order to claim their exemption.

The penalties for affected owners for non-filing are a minimum of:

• $5,000 per individual per property, or
• $10,000 for non-individuals
• In addition to the minimum above penalties, add:
• 5% of the tax calculated for the calendar year, plus
• 3% of the tax calculated multiplied by the number of complete months that the return is late.

If you are in the business of constructing and selling residential houses, you are still required to complete a UHT return if you owned the property as of December 31, 2022. However, tax exemptions may apply under specific conditions related to the property’s completion date and sale status.

HOW CAN WE HELP?

Our team at Sawatsky Chartered Professional Accountants can assist you with filing the UHT returns.

If you would like our assistance, please provide the following information for each property:

• Physical address of the property, property ID used in the land registration system, and property tax/assessment roll number
• Purchase year and price
• Property type (e.g., detached house, duplex, triplex, etc.)
• Current tax assessment value used by the municipality for property taxes

Please refer to the following links for UHT filing:

• Paper form: UHT-2900 Underused Housing Tax Return and Election Form
• Electronic filing: CRA Online filing form UHT Return and Election Form