Underused Housing Tax Transitional Relief Announced

The Canada Revenue Agency (CRA) understands that there are unique challenges for affected owners in the first year of the Underused Housing Tax Act (UHTA) administration.

To provide more time for affected owners to take necessary actions to comply, the Minister of National Revenue is providing transitional relief to affected owners. 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.

This transitional relief means that although the deadline for filing the UHT return and paying the UHT payable is still April 30, 2023, no penalties or interest will be applied for UHT returns and payments that the CRA receives before November 1, 2023.

UHT Filing Help

Eliminate confusion at tax time! Be sure that everything is organized and ready for your accountant with this checklist.

Download the Complete 2023 Commentary Here >

On March 28, 2023, the Deputy Prime Minister and Finance Minister, the Honourable Chrystia Freeland, presented Budget 2023 – A Made-in-Canada Plan: Strong Middle Class, Affordable Economy, Healthy Future, to the House of Commons.

No changes were made to personal or corporate tax rates or to the inclusion rate on taxable capital gains. Some highlights include the following:

A. Personal Measures

Modifications to the alternative minimum tax regime focused on high-income individuals.
A one-time grocery rebate equal to two quarterly GST/HST credit payments.
Additional flexibility and possibilities with Registered Disability and Registered Education Savings Plans were introduced.

B. Business Measures

Modifications to the intergenerational business transfer rules to set requirements for activity by the children in the business and the transfer of control, equity ownership and management from the parents to the children.
Introduction of the employee ownership trust structure to provide a mechanism for business owners to transfer ownership in their private corporations to employee groups.
Several investment tax credits and other incentives were introduced or modified to encourage investment in clean energy.

C. International Measures

Confirmation of the government’s intention to introduce legislation implementing the income allocation rule and a domestic minimum top-up tax applicable to Canadian entities of multinational enterprises consistent with the OECD’s BEPS initiatives.

D. Sales and Excise Tax

Increasing the air travellers security charge, limiting increases to alcohol excise duties for one year and adjusting the cannabis excise duty remittance frequency.

E. Other Measures

New income-tested dental care program for uninsured Canadians.

F. Previously Announced Measures

Intention to proceed with previously announced measures, including those related to excessive interest and financing expenses limitations; reporting rules for digital platform operators; extension of the residential property flipping rule to assignment sales; substantive Canadian-controlled private corporations; the mandatory disclosure rules; the electronic filing and certification of tax and information returns; and GST/HST changes in respect of cryptoasset mining.

Download the Complete 2023 Commentary Here >

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

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.

The new Underused Housing Tax (UHT) imposes a 1% annual tax on the value of residential real estate considered to be vacant or underused that is owned on December 31 of each year. The government indicated that the tax would target property owned by non-Canadians; however, the scope of filing requirements extends to many Canadian entities and individuals, including private corporations, partnerships and trustees of a trust. The first filings and taxes are due on April 30, 2023, but no penalties or interest will be applied for UHT returns and payments that the CRA receives before November 1, 2023.

This summary is intended to be a general guide in determining filing obligations and tax exposure. The specific legislation, regulations and CRA administrative policy should be reviewed for a complete and detailed understanding.

This form is used by rental property owners to report their rental income and expenses for income tax purposes.

This is used to calculate your business or professional income as a self-employed person. Use it if you are the only person in the business (sole proprietorship) or if you are in business with one to five other people (partnership). You’ll mark down your business income, cost of goods sold, and business expenses.

You can deduct expenses for the business use of a workspace in your home, as long as you meet one of the following conditions:

it is your principal place of business (>50% business use)
you use the space only to earn your business income, and you use it on a regular and ongoing basis to meet your clients, customers, or patients

You can deduct expenses you incur to run a motor vehicle you use to earn business income and sometimes if you are required by your employer to travel during the course of performing your employment duties (see Form T2200).