Underused Housing Tax (“UHT”)
What is the Underused Housing Tax (“UHT”)?
UHT is an annual federal 1% tax on the ownership of vacant or underused housing in Canada. While the government’s aim was to target non-Canadians, the filing requirements are broad and capture many Canadian persons, not just non-citizens, and non-permanent residents.
Many Canadian persons will be exempt from tax; however, you must file to claim the exemption, unless you are an “excluded owner”.
There are significant implications for failure to file:
- Minimum penalties of $5,000 for individuals and $10,000 for corporations.
- This penalty applies even if you do not have taxes owing.
- No limitation periods for future CRA assessments.
- CRA may deny a section 116 certificate to a non-resident vendor.
Underused Housing Tax vs. Vacancy Tax
Toronto’s Vacant Home Tax or British Columbia’s Speculation and Vacancy Tax are similar but separate municipal and provincial programs – they are not the UHT. If you live in an affected area, you may need to file these returns separately.
How do you know if you need to file UHT?
Are you an “owner”?
- You are an “owner” if you are registered on title in the land registration system on December 31st
- Other non-registered owners:
- Life tenant under life estate
- Life lease holder
- Long-term land lease holder (20+ years, or with purchase option)
Do you own a “residential property”?
A “residential property” means a property in Canada defined as:
- A detached house or similar building that contains a maximum of 3 dwelling units, including the related land
- A “dwelling unit” contains a private kitchen, private bath and private living area
- Part of a building that is:
- A semi-detached house, rowhouse unit, residential condominium unit, or
- Other similar premises that is, or intended to be, a separate parcel or other division of real property along with any common areas and related land
|Examples of “residential property”||Examples that are not “residential property”|
|– detached or semi-detached house|
– duplex or triplex
– laneway or coach house
– non-commercial cottage, cabin, chalet
– residential condominium unit
– rowhouse unit or townhouse
|– quadruplex (4+ units)|
– high-rise apartment building
– hotel, motel, inn
– motor, mobile or park model home
– board or lodging house
– commercial cottage, cabin
– building >50% for retail / office that contains an apartment
Are you an “excluded owner”?
- An “excluded owner” is not required to file a UHT return or pay UHT:
- Canadian citizens and permanent residents, except to the extent they hold property as a trustee of a trust and a partner of a partnership
- Certain publicly listed corporations
- A trustee of a mutual fund trust, real estate investment trust, or specified investment flow-through trust
- Federal or provincial government authorities
- Various public service entities
Can you claim an exemption?
The are many exemptions from paying UHT, however, you must file a UHT return, to claim the exemption.
Exemption (a): Owner
- Specified Canadian corporation – foreign owners do not control, directly or indirectly, 10% or more of the corporation voting rights or share value).
- Specified Canadian partnership – on December 31st, each member is an “excluded owner” (see #3) or a “Specified Canadian corporation”.
- Specified Canadian trust – on December 31st, each beneficiary that has interest in the property is an “excluded owner” (see #3) or a “Specified Canadian corporation”.
- New owner – who acquired the property in the year, and not an owner of that property in the past 9 years.
- Deceased owner – an owner who died in the year or the prior year.
- Representative of a deceased owner – a personal representative of a deceased owner. The exemption applies for the year of death and subsequent year and does not apply if that representative was also an owner of the property in either year.
- Co-owner of a deceased owner – a co-owner of a property where another co-owner owned at least 25% of the property at their death. The exemption applies for the year of death and the subsequent year.
Exemption (b): Occupant of the residential property
- Primary place of residence – property must be the primary place of residence for the individual, spouse or common-law partner, or their child attending a designated learning intuition.
- Qualifying occupancy – property must be occupied by a “qualifying occupant” for one or more qualifying occupancy periods totaling at least 180 days in the calendar year.
- “Qualifying occupant” is one that occupies the property as:
- Arm’s length individual, under a written agreement
- Non-arm’s length individual, under a written agreement, and pays at least 5% of the value of the property.
- Owner, their spouse, or common law partner, occupying due to their work.
- Owner, their spouse, or common law partner, parent, or child, who is a Canadian citizen or permanent resident.
- “Qualifying occupant” is one that occupies the property as:
Exemption (c): Availability of the residential property
- New construction and held as inventory – properties that were constructed and substantially completed between January 1 and March 31 and the property is for sale and the property was never occupied by an individual as a place of residence during the year.
- Under construction – properties that are under construction and are not substantially completed (stage of completion is 90% or more) before April of the year.
- Not suitable for year-round living or seasonably inaccessible due to lack of year-round public road access.
- Uninhabitable from disaster or hazardous conditions for at least 60 consecutive days in the year (available a maximum of 2 years per disaster).
- Uninhabitable from major renovations for at least 120 consecutive days due to major ongoing renovations (available once every 10 years).
Exemption (d): Location and use of the residential property
- Vacation property – located in an eligible area (see CRA’s tool to determine your property’s eligibility) in Canada, and used by the owner, spouse or common-law partners for at least 28 days in the year.
Calculate the Underused Housing Tax
If you’ve gone through the above steps and you cannot claim any of the exemptions, you must pay UHT for the calendar year by calculating:
You can elect to use fair market value for the tax base, an election must be filed, and the owner must obtain a written appraisal (for the purpose of UHT) of the property by an accredited, professional, real estate appraiser operating at arm’s length to the owner.
Underused Housing Tax Penalties
Failure to file the UHT return is calculated at the greater of:
- 5% of the UHT payable, plus 3% of the UHT payable for each month the return is not filed; and
- $5,000 for individuals, or $10,000 for corporations
Underused Housing Tax Deadline to file the return
The CRA recognizes that there are challenges for affected owners in the first year of UHT administration, and has provided a filing extension and penalty and interest relief if the return and taxes are paid by October 31, 2023.
You must file the UHT return to claim the exemption, a failure to file return will result in loss of the exemption and interest at the prescribed rate.
What can you do to prepare for your UHT filing?
To complete the Form UHT-2900, you will need the following:
1. Obtain the proper tax identifier number
|Individual||SIN or ITN|
|Corporation||RU number (contact the CRA, or via Business Registration Online)|
|Partnership||Partnership account number|
|Trust||Trust account number (if applicable)|
2. Historical closing package when the property was first acquired
3. Property tax assessment
4. Land registry documents or title search as of December 31
5. Recent or comparable sales price on or before December 31
6. Appraisal report, if FMV election is chosen
Underused Housing Tax Webinar
We have hosted a webinar dedicated to Underused Housing Tax where we’ve covered key points and answered questions