The Canada Revenue Agency (“CRA”) has released an extended deadline of April 30, 2024, to file the 2022 UHT returns without being charged penalties or interest
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What is the Underused Housing Tax (UHT)?
The UHT is a new federal tax aimed at deterring non-Canadian ownership of vacant or underused Canadian residential properties. It was introduced in the 2021 federal budget. In addition, it imposes a 1% tax on the taxable value of residential properties that are unused or underused for more than 180 days a year.
Affected owners must file an annual UHT return (UHT-2900) by April 30 each year. Those who fail to file will be subject to penalties and interest that can quickly add up.
The Intent of the UHT
While the intent of the UHT is clearly to discourage non-Canadian investment in residential property, the resulting onerous filing obligations and 1% tax may not be the most effective policy tool. In addition, the rules surrounding who must file are very specific and could impact many Canadians.
In addition to imposing the tax, the UHT also requires owners deemed affected to maintain records. It can support their UHT returns and exemptions. This will be especially important for those who own residential property through a trust, private corporation or partnership.
Affected individuals who own a residential property through a trust, private corporation, partnership or bare trust may be subject to the UHT even if they owe no tax. All affected individuals must review their ownership structures and consider the benefits of making changes to avoid this new tax.
UHT Terminology
When the federal government first announced the UHT in its 2021 budget, the proposal was that non-resident, non-Canadian owners of residential property would have to file an annual return and pay 1% tax on each property they owned on December 31st of the previous calendar year. However, the final legislation is much broader than that.
To avoid penalties, any affected person who owns a qualifying residential property must file an annual UHT return. They need to declare whether they are taxable under the new regime. This includes individuals, private companies (including nominee corporations), partnerships and trusts, as well as certain public corporations.
The term “residential property” broadly defines any building containing three or fewer dwelling units, including single-detached homes, duplexes, triplexes, and row-house units. The filing requirements apply to both existing and new buildings.
A person who is identified as an owner of a residential property in the relevant land registry system may be required to file a UHT return, or if they have legal ownership or an interest in the property as evidenced by the title to a deed or other document. Ownership is not limited to legal ownership. But includes beneficial interests such as life estates and long-term leases with continuous possession.
1. Exemptions from the UHT Filing Requirement
- Although you may be subject to filing a UHT return, there are several exemptions where tax may not be applicable. The most significant exemption is a residence occupied by an individual as their primary place of residence or used by their spouse, common-law partner, parent, or child who is a student.
- In addition, the UHT will not be payable if the property is seasonably inaccessible, is subject to a government-ordered evacuation due to a natural disaster or other emergency, is under renovation or is uninhabitable because of a hazardous condition.
- While these exemptions are helpful, the filing requirements will still be onerous for many Canadian property owners. It is important to review your situation with an advisor to determine whether you will have a filing obligation.
Who Must File a UHT Return
People who own residential properties in Canada must file UHT returns unless they are excluded owners.
1. Excluded Owners
- Excluded owners include Canadian citizens and permanent residents, any person who owns a residential property as a trustee of a mutual fund trust, real estate investment trust, or specified investment flow-through (SIFT) trust, a Canadian corporation whose shares are listed on a Canadian stock exchange, a registered charity, a cooperative housing corporation, municipalities, indigenous governing bodies, individuals and certain other public service bodies such as universities, public colleges, school authorities and hospital authorities.
- In addition, the UHT will not be payable if the property is seasonably inaccessible, is subject to a government-ordered evacuation due to a natural disaster or other emergency, is under renovation or is uninhabitable because of a hazardous condition.
2. Affected Owners
- Affected owners must file a UHT-2900 Underused Housing Tax Return and Election Form. This return will calculate the amount of UHT payable and/or if any exemptions are applicable.
3. Properties
- UHT applies to all properties that are occupied for less than 180 days in a calendar year, including condominiums, certain apartments, townhouses, duplexes, triplexes, single-detached homes, row-house units and other similar buildings.
4. Tax
- In general, the tax is calculated as the “taxable amount” multiplied by 1%. The taxable amount is determined as the taxable value which is the greater of the assessed value and the most recent sale price on or before Dec 31 of the calendar year.
5. SIN and ITN
- Individuals who must file a return will need to have either a Canadian social insurance number or an individual tax number (ITN). If you do not have a SIN or ITN, it is important to apply for one immediately to be able to complete your UHT returns and payments. Businesses will need a business number and must register for an Underused Housing Tax program account (RU0001).
- Some professionals may not be familiar with the complexities of this filing requirement. It is important to obtain advice from a tax expert.
- While many individuals will not be liable to pay the UHT, it is important to review the legislation to ensure you are fully aware of your obligations. As the number of different taxes and levies on foreign investment and ownership of residential property continues to grow across Canada, it is essential for residents and non-residents of Canada who own or hold Canadian residential property to be up to date on these requirements.