The new Underused Housing Tax (UHT) is an annual 1% property tax on the value of a residential property that is considered vacant or underused in Canada. It applies to residential property including detached houses, duplexes, triplexes, semi-detached houses and condos.

‍

The UHT applies to residential properties that are owned on or before December 31st of each calendar year and is applied retroactively to January 1, 2022. This means that owners will need to determine if they are required to file for the 2022 tax year.

Who Needs to file?

Every person who is identified as an owner of a residential property under the relevant land registration system, other than an excluded owner, now needs to file an Underused Housing Tax Return and Election Form annually.

‍

This includes but is not limited to:

• Children on title with parents for estate planning purposes
  ‍
• Parents on title with children as co-signors of a mortgage
  ‍
• Joint owners of residential rental property
  ‍
• Individuals who hold residential property in trust for other people or companies (including bare trusts, alter ego trusts, spousal trusts or joint partner trusts)
  ‍
• Anyone who has set up an Alter Ego Trust, Spousal Trusts or Joint Partner Trusts that has an interest in residential property
  ‍
• Any person who is the registered owner of residential property as a nominee of a bare trust
  ‍
• Individuals who are the owners of residential property in relation to a Joint Venture Agreement or partnership agreement in relation to residential property
  ‍
• Companies

How the UHT is calculated?

The UHT is calculated by taking 1% of the property’s specified value, multiplied by the ownership percentage. There are various exemptions available to property owners which can relieve them from having to pay the annual 1% tax.

‍

The intent of the UHT is to target vacant or underused houses in Canada, mainly those owned, directly or indirectly, by individuals who are not citizens or permanent residents of Canada.

‍

While most Canadian individuals are excluded from the UHT, there are situations where certain Canadian individuals have filing obligations. In order for a homeowner to be exempt, they have to be an excluded owner.

Who Is an Excluded Owner?

Excluded owners have no obligation to file under the UHT. A homeowner is an excluded owner if as of December 31st the owner is:

‍

• An individual that is a Canadian citizen or a permanent resident of Canada (except where the individual holds an interest in the property as a partner of a partnership or as a trustee of a trust).
  ‍
• A corporation incorporated under the laws of Canada or a province and the shares of which are listed on a Canadian stock exchange (Note- private corporations are not excluded owners)
  ‍
• A registered charity
  ‍
• A cooperative housing corporation
  ‍
• An Indigenous governing body or a corporation owned by an Indigenous governing body
  ‍
• A municipality or a corporation owned by a municipality
  ‍
• The government of Canada or an agent of the Canadian Government
  ‍
• The government of a province or an agent of the government of a province
  ‍
• Certain other public service bodies (e.g., universities, public colleges, school authorities, hospital authorities)

‍

If an owner is not an excluded owner, they are considered an affected owner under the wording of the UHT Act and have a UHT filing obligation and are subject to filing penalties.

Not Excluded Owners – Trustees and Partners

If an owner is a trustee of a trust (other than a trustee of a testamentary trust) or a partner of a partnership, those parties will be required to file under the Underused Housing Tax Act.

‍

If a bare trust agreement exists where the legal title holder of a property holds the title for the benefit of another individual (i.e. legal and beneficial title are different), this is considered a trust arrangement and the legal owner will have UHT filing obligations.

‍

Some examples of homeowners who are excluded owners are:

‍

• A Canadian citizen or permanent resident owns a rental property (100% legal and beneficial owner)
  ‍
• Non-resident for income tax purposes, but a Canadian citizen or permanent resident who holds 100% legal and beneficial title to a property

Some examples of homeowners who are affected owners are:

‍

• Two or more persons own a rental property. If a residential property is held as a rental property with a view of profit and sufficient activity to constitute a business, this could be considered a partnership
  ‍
• Any residential property held by a private corporation
  ‍
• Residential property held by a Trust
  ‍
• Residential property held in a corporation
  ‍
• Non-resident foreign individuals (not a Canadian citizen or a Canadian permanent resident) who owns residential property

‍

Please note that, for the above examples of owners who are affected owners, an obligation to file exists, however, exemptions from paying the UHT may still be available.

Exemptions from paying the Underused Housing Tax

If an owner is not an excluded owner, there is a UHT filing obligation. However, an exemption may still apply which would exempt the owner from paying any UHT. Broadly speaking, these exemptions can be categorized as noted below:

‍

• Based on the type of owner
  ‍
• Based on availability of the property
  ‍
• Occupancy of the property
  ‍
• Location and use of the property

‍

An owner only needs to qualify for one exemption to be exempt from paying UHT.

Underused Housing Tax Exemptions Based On the Type of Owner

The following exemptions are available under the UHT Act based on the type of owner:
‍

• New Ownership - The Owner acquired the property in the year and did not own that property at any time in the prior 9 calendar years.
  ‍
• Owner’s Death - The personal representative or other legal representative of a deceased individual is exempt for the calendar year in which the owner passed away and for the subsequent calendar year.
  ‍
• Another Owner’s Death - Where an owner with at least a 25% interest in the property dies, any other owner’s interest in the property is exempt for the calendar year in which the death occurred and for the subsequent calendar year.
  ‍
• Specified Canadian Corporations – Generally speaking, where an owner is a Canadian corporation that is owned or controlled by Canadian citizens or permanent residents will be exempt.
  ‍
• Specified Canadian Partnerships - Where all owners/members of the partnership are excluded owners, a specified Canadian corporation, or is a prescribed partnership.
  ‍
• Specified Canadian Trusts – An owner’s interest in a residential property is that of the trustee of a specified Canadian trust. A specific Canadian trust is a trust where every person with a beneficial interest in that trust is an excluded owner or a specified Canadian corporation or otherwise exempt.

Underused Housing Tax Exemptions Based on Availability of the Property

• A Newly Constructed Property - A residential property owner’s interest is exempt for a calendar year if the property was not substantially completed by April of that year.
  ‍
• Property Held by a Developer as Inventory for Sale - A residential property owner’s interest is exempt if the property is constructed in the first quarter of the year and is offered for sale to the public during the calendar year and the property had never been occupied by an individual as a place of residence of lodging during the calendar year.
  ‍
• Property not Suitable for Year-Round Use – The residential property is not suitable to be lived in year-round or seasonably inaccessible due to public access not being maintained year-round.
  ‍
• Uninhabitable Due to Disaster - Due to disaster or hazardous situations, the property cannot be inhabited for at least 60 consecutive days in the calendar year.
  ‍
• Uninhabitable Due to Major Renovation – An owner cannot live in the property for a consecutive 120 days due to ongoing major renovations. This exemption is only available once every 10 years.

Underused Housing Tax Exemptions Based on Occupancy of the Property

• Primary Place of Residence in Respect of an Individual - Primary place of residence for the year of the individual homeowner, their spouse or common-law partner, or their child attending a designated learning institution.
  ‍
• Qualifying Occupancy Test - Property occupied in periods of at least one month at a time, totaling at least 180 days in the year by a qualifying occupant. Qualifying occupant includes: 
• An arm’s length individual (to you and your spouse or common law partner) renting the property and there is a written  contract
• A non-arm’s length individual paying fair rent with a written contract
• The owner or their spouse or common-law partner who has a Canadian work permit
• The owner or their spouse or common-law partner, parent, or child who is a Canadian citizen or permanent resident

Underused Housing Tax Exemptions Based on Location & Use of the Property

‍

• Vacation property located in certain prescribed rural areas of Canada and used by an individual owner, their spouse or common-law partner for at least 28 days in the year.
  ‍
• Prescribed by regulation to be determined by Statistics Canada in the last census report as not being neither within a census metropolitan area nor within a specified census agglomeration and not within a population center.

Relevant Dates

The UHT form and election filing must be done for each relevant residential property for a calendar year, starting with December 31, 2022 by the following April 30th.

Underused Housing Tax Filing Penalties

CRA may assess and demand a penalty even if there is no UHT payable. If you fail to file your return by April 30th of the following calendar year, the penalty is calculated as the greater of the following:

‍

• $5,000 for individuals or $10,000 for corporations, and
• The total of:
• 5% of the UHT payable for the residential property for the calendar year, and 
• 3% of the UHT payable for the residential property for the calendar year multiplied by the number of complete months that the return is past due.

‍

Additional penalties apply if the homeowner fails to file by December 31st of the following year. In this case, CRA denies various exemptions from calculating the UHT, where the exemptions may actually be applicable if the filings were done by April 30th.

‍

All owners of residential property should contact their accountants or our office by emailing UHT@kswlawyers.ca as far in advance of April 30th of each year to obtain the necessary advice on whether they are required to file under the UHT Act and whether any UHT tax is a payable.

‍

This article is not legal advice. It is a summary of complex legislation that may or may not apply to you and your situation. If you are looking for legal advice in relation to the UHT tax a particular matter please contact one of our group members.

‍

‍

‍

‍