You may have heard of the new Underused Housing Tax (UHT) in the news recently. We have broken down the details to provide you with a comprehensive picture of what this new tax filing means to you!
What is it?
In effect January 1, 2022, the UHT is an annual 1% tax calculated on the value of non-resident, non-Canadian owned residential real estate that is considered to be vacant or underused. However, Canadian citizens and residents may still be required to file a return and claim an exemption from tax. This is a separate filing apart from your regular personal or corporate tax return, and is required for each residential property that you own in Canada on December 31st.
Does this apply to you?
If you own properties in addition to your principal residence, this may apply to you. Examples include vacation properties, rental properties, properties held in trust, and farm properties.
A residential property is considered to be:
1. a detached house or similar building that does not contain more than 3 dwelling units dwelling unit = kitchen, bath, and private living area).
2. A semi-detached house, residential condominium unit, or rowhouse unit.
3. Any other similar premise intended to be owned as a separate unit or parcel.
4. Prescribed property – not yet defined by UHT regulations.
Example: An apartment building with four or more units that do not have separate title is not considered residential property by UHT regulations.
We will discuss the following three categories:
1) Owners with no UHT reporting or tax obligations.
2) Owners required to file a UHT return and pay tax.
3) Owners required to file a UHT return but pay no tax.
1) Excluded from filing:
Individual Canadians (exceptions apply – see number 2 below).
Publicly traded Canadian corporations.
Certain Trusts (estates controlled by the executor, mutual fund trusts, real estate investment trusts, and specified investment flow-through trusts)
Government bodies, coperating housing corporations, and municipal organizations.
Indigenous governing bodies or corporations wholly owned by an indigenous government body.
2) Required to file, but not pay tax:
Indirect ownership involving a Canadian corporation, Canadian trust, or Canadian partnership (if there are multiple owners, each owner must file a separate UHT return).
Non-residents and/or spouse for whom the property is considered to be their primary place of residence or have a child residing there to study at an educational institution for the year. Only one property is exempted from tax per year.
3) Required to file and pay tax at 1% of the value of the property
10% or more of a corporation is owned by a non-resident
Not operating under the laws of Canada or a province.
A chairperson or other presiding officer of a corporation having no share capital is neither a citizen, nor a permanent resident.
10% or more of the corporation’s directors are neither citizens, nor permanent residents of a corporation having no share capital.
You own other properties and are a non-resident, but none of the above applies to you.
4) Exempted from paying UHT in the year (filing is still required):
A Canadian corporation without share capital (exceptions apply – see number 3 above).
A new owner in the calendar year.
A deceased owner, or a co-owner or personal representative of a deceased owner.
Newly constructed property in the calendar year.
Not suitable to be lived in year-round, or seasonally inaccessible.
Inhabitable for a certain number of days due to a disaster/hazardous conditions or renovations.
It is a vacation property used by you or your spouse/common-law partner for at least 28 days in the calendar year.
Qualifying occupancy exemption: The property is occupied at least 180 days (must include 1 full month) in the calendar year by an individual with a written contract. If non-arm’s length, the individual must pay at least fair rent for the property. Only one property can be claimed under this exemption.
Both calendar UHT filing and taxes are due annually on April 30th of the following year.
Information required to complete your return
Residential property address and type (house, duplex, condominium unit, etc.).
Year ownership was acquired.
Your ownership percentage, names of other owners and their ownership percentages.
Most recent sale price on or before December 31st.
If you own multiple properties and are not a corporation, Canadian citizen, nor resident of Canada: do you have a non-Canadian/non-resident spouse/common-law partner who is an owner of any other residential properties in Canada?
How to determine the value of the property
Taxable value (the higher of the assessed value under the property tax assessment and most recent sale price on or before December 31st of the calendar year). We suggest using the taxable value for filing purposes.
Fair market value which must be appraised by an accredited, professional real estate appraisal operating at arm’s length.
The 1% tax is reduced based on your ownership percentage.
You are only able to designate one property as your principal residence, and one considered for the qualifying occupancy exemption. If either you are your spouse own multiple residential properties. An owner and spouse cannot designate different residential properties for the two exemptions.
You must file a UHT with a tax identifier number. If you do not have a social insurance number (SIN) or business number (BN), you must apply for an individual tax number (ITN). A Trust account number (TAN) cannot be used to file the UHT return.
If tax of over $50,000 is owing, a payment must be made through an acceptable financial institution.
You could face penalties of over $5,000 if you hold a UHT and do not file - even if don’t owe tax.
CRA announced on March 27, 2023, that no penalties or interest will be applied for UHT returns and UHT payments that CRA receives by October 31, 2023.
We will be reaching out to clients who we identify will be affected by this new tax filing, however if you believe you will be affected by this change in regulations, please let us know immediately.
Questions? Contact us at 506-455-5397.