The Underused Housing Tax (UHT) Act
In June 2022, the Underused Housing Tax (UHT) Act received royal assent and became law. The act imposes a 1% tax on the value of residential properties that are vacant or underused which are owned by entities other than permanent residents or Canadian citizens.
The legislation is retroactive to January 1, 2022 and returns will follow a calendar year reporting period. A return in respect of the UHT will be due April 30 each year, even if no UHT is owed. The first return will be due May 1, 2023 (since April 30 is a Sunday). A late filing penalty of up to $10,000 may be charged on returns filed after the due date, and an additional penalty will be charged on the UHT due that was not paid.
The UHT covers detached homes with up to three units (i.e., single family home, duplex, triplex), semi-detached homes, row houses, and condominiums.
Properties excluded from the UHT include residential properties that are uninhabitable for at least 120 days in the year due to renovations, residential properties if the owner died during the current or previous calendar year, and vacation properties located in rural areas and used personally by the owner, owner’s spouse or common-law partner for at least four weeks in the calendar year.
The Act applies to housing owned directly or indirectly, in whole or in part, by non-residents or non-Canadians. The residency test for this Act is not the same as the income tax concept of residency.
Excluded owners who are not required to file a UHT return include Canadian citizens and permanent residents, registered charities, and co-operative housing corporations, among other entities.
Private companies, partnerships, and trusts are not excluded owners and are not excluded from filing a UHT return if they own a residential property. Therefore, it is important that these entities file a return each year, even if there is no UHT owing.
There are various exemptions that may be claimed to eliminate the tax otherwise payable under the Act. Perhaps, most commonly, a private corporation can claim an exemption as a specified Canadian corporation if it is owned less than 10% by foreign individuals or foreign corporations. Partners of partnership and trustees of trusts could also be exempt if they hold an interest in residential property through a partnership or trust.
A UHT return must be filed for owners that are not excluded owners even if an exemption can be claimed to eliminate UHT payable. If a return is not filed, or is filed late, a penalty of up to $10,000 may result. In many circumstances, it is likely that most private corporations holding residential real estate will be required to file a return each year.
The UHT on a vacant or underused residential property is 1% of the home’s value, which is the higher of its most recent sale price or its taxable value. An election may also be filed to use the fair market value determined by an appraiser. Owners with a partial ownership interest in a residential property are each responsible for the UHT based on their ownership interest. The Underused Housing Tax Return and Election Form has recently been released.
We encourage you to reach out to us for further information if you own residential real estate. Please be advised that we will not be filing this return unless requested and it is not part of our year-end file preparation.