Updated – November 6, 2023
On June 9, 2022, the Underused Housing Tax Act (UHTA) received Royal Assent and became retroactively effective from Jan 1, 2022 onwards. This act implements an annual 1% tax on the ownership of residential property within Canada that is deemed vacant or underused.
Much like BC’s provincial Speculation and Vacancy Tax, Vancouver’s Empty Homes Tax and Toronto’s new Vacant Home Tax, the federal Underused Housing Tax (UHT) is aimed at improving the affordability of residential housing by making it less appealing for certain owners to leave their properties vacant.
This tax mainly applies to non-resident, non-Canadians and therefore the majority of Canadian residential property owners will not be affected (though some exceptions do apply). This is a quick summary of the most important information you need to know about the UHTA and how it will affect you this tax season.
Definitions
In order to understand who the new UHT applies to, we need to define what is considered a residential property, and who is considered an owner.
Residential Property – The UHT only applies to residential property within Canada. For clarification on what buildings qualify as residential property for the purposes of the UHT, please consult the following table:
Owner – You are considered to be the owner of a residential property if any of the following criteria are met:
- You are identified as an owner of the property in the land registration system where the property is located
- You are a life tenant under a life estate in the property
- You are a life lease holder of the property
- You are a lessee that has continuous possession of the land on which the property is situated under a long-term lease
Who Will the UHT Affect?
The UHT is a federal tax that applies to all residential property within Canada. However, the CRA has divided property owners into two distinct categories: excluded owners and affected owners.
Excluded owners have no obligations or liabilities under the UHTA, whereas affected owners are subject to certain new requirements. According to the CRA, you qualify as an excluded owner of a residential property if you are any of the following:
- A Canadian citizen or permanent resident of Canada (unless you are an owner of the property as a trustee of a trust or as a partner in a partnership)
- An individual who owns residential property as a trustee of a mutual fund trust, real estate investment trust, or specified investment flow-through trust
- A publicly listed Canadian Corporation
- A registered charity
- A cooperative housing corporation
- A para-municipal organization
- An Indigenous governing body or a corporation owned by an Indigenous governing body
If none of the above apply to you, then the CRA refers to you as an affected owner and requires you to adhere to the rules of the new UHTA.
What Does the UHT Mean for Affected Owners?
Affected owners will need to file an Underused Housing Tax Return and Election Form (Form UHT-2900) and pay the applicable taxes for each residential property they own in Canada on December 31 of the calendar year. This form must be completed and filed by April 30 of the following year.
The amount payable for the UHT is equal to 1% of the taxable value or the fair market value of the property, multiplied by the ownership percentage. The property’s taxable value will be determined as the greater of: The assessed value for property tax purposes, or the most recent sale price on or before December 31 of the calendar year. If the owner wishes to use the fair market value of the residential property instead, they may choose to file an election in a prescribed form any time between Jan 1 of the relevant year and April 30 of the following year.
As this tax came into effect at the start of 2022, any affected owners must file an Underused Housing Tax Return and Election Form for each property they owned on Dec 31, 2022, by May 1st, 2023 (as April 30 falls on a Sunday).
Affected owners who fail to file by the deadline will normally be subject to significant penalties. However, as this is the first year of the UHTA, the Minister of National Revenue is providing transitional relief to affected owners, allowing them more time to comply. Affected owners now have until April 30, 2024, to file their returns for the 2022 tax year without facing late filing penalties or interest fees.
Are There Any Exemptions?
If you don’t qualify as an excluded owner, your ownership of a residential property may still be exempt from having to pay the UHT if the property is any of the following:
- A primary place of residence for the owner, their spouse/common-law partner, or the child of either (provided the child occupies the residential property while studying at a designated learning institution)
- Purchased during the relevant calendar year
- Meets the qualifying occupancy period test for at least 180 days of the relevant calendar year
- Owned by a specified Canadian corporation where at least 90% of the shares representing votes or value are held either directly or indirectly by citizens or permanent residents of Canada
- Uninhabitable for a minimum period of 60 consecutive days in a calendar year due to disaster or hazardous conditions
- Owned by a person who died in the relevant calendar year or the year prior
- A vacation property located in an eligible area of Canada
- Undergoing renovations and is uninhabitable for a minimum period of 120 consecutive days in a calendar year (this exemption may only be granted once every 10 years)
- Not suitable for year-round use or seasonally inaccessible
- Newly constructed and not more than 90% complete before April of the relevant calendar year
If you are an affected owner whose property meets one of the exemptions above, then you won’t be liable to pay the UHT. However, as an affected owner you will still have to complete and file an Underused Housing Tax Return and Election Form before the annual deadline.
Final Thoughts
We hope that this quick guide has answered your most pressing questions regarding the UHT and informed you of your duties and responsibilities under this new tax act. As certain parts of the legislation still contain some ambiguity, Finance Canada may release further regulations to clarify how these new rules will apply. Stay tuned for future updates!
