As part of the ongoing efforts to address the affordable housing issue in Canada, a new taxation measure, the Underused Housing Tax (UHT), has been introduced by the federal government. The UHT, effective from January 1, 2022, is aimed at promoting efficient utilization of residential properties, thereby contributing to alleviating the housing affordability challenge.

Here’s a closer look at the Underused Housing Tax:

Understanding the Underused Housing Tax:

The UHT imposes a 1% tax on the value of residential properties that are either unused or under occupied. The tax is calculated based on either the assessed taxable value or the fair market value of the property. Opting for the fair market value requires an election to be filed with the CRA, accompanied by a professional appraisal from a recognized real estate appraiser operating at arm’s length from the owner. Shared ownership scenarios will see the tax liability apportioned according to the ownership percentage.

Who is Obliged to File and Pay the UHT?

Primarily targeting non-resident and non-Canadian owners, the UHT does extend to certain Canadian owners under specific circumstances. The CRA outlines excluded owners as:

  • Canadian citizens or permanent residents (with certain exceptions).

  • Individuals or entities holding residential property under specified trusts or corporations listed on Canadian stock exchanges.

  • Registered charitable organizations, cooperative housing corporations, and Indigenous governing bodies or their wholly-owned corporations.

  • Those not falling under the excluded categories are termed “affected owners,” encompassing:

  • Foreign nationals or entities.

  • Canadian citizens or permanent residents holding property under certain trusts, partnerships, or unlisted Canadian corporations.

Exemptions from the UHT:

While affected owners are mandated to file the UHT return, not all will incur the tax liability. Exemptions are categorized based on the type of owner, the property's condition, and its location and use. Some notable exemptions include:

  • Specified Canadian corporations, partnerships, or trusts.

  • Newly acquired or constructed properties.

  • Properties undergoing renovation or rendered uninhabitable due to disasters.

  • Residential properties used for a specified duration by the owner or their family.

Filing and Payment Timelines:

2022 marks the inaugural tax year for the UHT, requiring affected owners to file a return for each residential property held as of December 31, 2022. Penalties for late filing are significant, starting at $5,000 for individuals and $10,000 for corporations, irrespective of the tax liability.

Although the UHT return and any payment due are traditionally required by April 30, 2023, a grace period extending up to October 31, 2023, has been provided to allow for compliance.

Electronic filing is available on the CRA website, or returns can be mailed to the respective tax centre based on the owner's residence or corporation’s physical address.

For assistance with UHT compliance, or to ascertain your status as an excluded, affected, or exempt owner, feel free to reach out to us at Capex CPA. Our proficient team is here to guide you through the intricacies of the Underused Housing Tax, ensuring seamless adherence to the new tax mandate.