What you need to know about the Underused Housing Tax

UPDATE March 27, 2023

To provide more time for affected owners to take necessary actions to comply, the Minister of National Revenue is providing transitional relief to affected owners.

The application of penalties and interest under the UHTA for the 2022 calendar year will be waived for any late-filed underused housing tax (UHT) return and for any late-paid UHT payable, provided the return is filed or the UHT is paid by October 31, 2023.

This transitional relief means that although the deadline for filing the UHT return and paying the UHT payable is still April 30, 2023, no penalties or interest will be applied for UHT returns and payments that the CRA receives before November 1, 2023.

The Government of Canada has introduced a tax on the ownership of vacant or underused housing in Canada.

Starting with the 2022 calendar year and for each following calendar year, owners of housing in Canada have to determine their obligations and liabilities under the Underused Housing Tax Act (UHTA).

• Some affected owners will have to file an annual return and pay the underused housing tax
• Other affected owners have to file an annual return but not pay the underused housing tax
• Excluded owners do not have to file an annual return or pay the underused housing tax

Table Of Contents

What is the underused housing tax?
Who has to file a return?
What is considered to be residential property?
Who is considered to be an owner?
Who is considered to be an excluded owner?
Who is considered to be an affected owner?
What are the conditions for paying the tax?
Do I have to keep any records?
What happens if you don't file a return for a property?
Are there any other exemptions?
When did this come into effect?
What if I have more questions?

What is the underused housing tax?

In general, the underused housing tax is a tax that is payable by non-resident, non-Canadian owners of vacant or underused housing in Canada.

The vast majority of Canadian owners of residential property are excluded owners and, therefore, do not have any obligations and liabilities under the UHTA.

HOWEVER, the underused housing tax is payable by certain Canadian owners of housing in limited situations.

Who has to file a return?

You have to file a return for each of your properties in Canada for which all of the following conditions are met on December 31 of a calendar year:

1) The property is a residential property
2) You are an owner of the residential property
3) You are not an excluded owner of the residential property

What is considered to be residential property?

Generally, residential property is defined as property that is either of the following:

• a detached house or similar building that contains not more than three dwelling units, along with any appurtenances and the related land
• a semi-detached house, rowhouse unit, residential condominium unit or other similar premises, along with any common areas, appurtenances and the related land

Examples detached houses, duplexes and triplexes, laneway houses and coach houses, cottages, cabins and chalets that are not commercial, semi-detached houses, residential condominium units, rowhouse units or townhouses

Examples of non-residential properties quadruplexes, high-rise apartment buildings, buildings that are primarily (more than 50%) for retail or office use and that contain an apartment, commercial condominium units, boarding houses and lodging houses, commercial cottages, cabins and chalets, hotels, motels, inns, and bed and breakfasts, floating homes, mobile homes, park model trailers, travel trailers, motor homes and camping trailers

Who is considered to be an owner?

You are an owner of a residential property if any of the following apply:

• you are identified as an owner of the property in the land registration system where the property is located
• you are considered an owner of the property based on such a land registration system
• you are a life tenant under a life estate in the property
• you are a life lease holder of the property
• you are a lessee that has continuous possession of the land on which the property is situated under a long-term lease

Who is considered to be an excluded owner?

*Excluded owners do not have to file a return or pay the underused housing tax.

You are considered an excluded owner of a residential property if you are any of the following:

• an individual who is a citizen or permanent resident of Canada, unless you are an owner of the residential property as either of the following:
  • a trustee of a trust (except if you are the personal representative of a deceased individual, in which case you are an excluded owner of the residential property)
  • a partner of a partnership
• the government of Canada or a province, or an agent of the government of Canada or a province
• an owner of the residential property as a trustee of any of the following trusts:
  • a mutual fund trust for Canadian income tax purposes
  • a real estate investment trust for Canadian income tax purposes
  • a specified investment flow-through (SIFT) trust for Canadian income tax purposes
• a corporation that is incorporated under the laws of Canada or a province whose shares are listed on a Canadian stock exchange designated for Canadian income tax purposes
• a registered charity for Canadian income tax purposes
• a cooperative housing corporation, hospital authority, municipality, public college, school authority or university
• a para-municipal organization
• an Indigenous governing body

Who is considered to be an affected owner?

*All affected owners of residential property have to file an annual return.

If you are an owner of a residential property in Canada on December 31 of a calendar year and you are not an excluded owner of the residential property on that date, the CRA refers to you as an affected owner of the residential property for the calendar year.

Examples of affected owners - individuals

• individuals who are not citizens or permanent residents of Canada and who are owners of residential property in Canada in any capacity
• individuals who are citizens or permanent residents of Canada and who are owners of residential property in Canada in either of the following capacities:
  • as a trustee of a trust (other than as a personal representative of a deceased individual and other than as a trustee of a mutual fund trust, real estate investment trust or SIFT trust for Canadian income tax purposes)
  • as a partner of a partnership

Examples of affected owners - corporations

• corporations that are incorporated otherwise than under the laws of Canada or a province and that are owners of residential property in Canada in any capacity
• corporations that are incorporated under the laws of Canada or a province whose shares are not listed on a Canadian stock exchange designated for Canadian income tax purposes and that are owners of residential property in Canada in any capacity
• corporations that are incorporated under the laws of Canada or a province without share capital and that are owners of residential property in Canada in any capacity

What are the conditions for paying the tax?

If you are an affected owner of a residential property on December 31 of a calendar year, you have to pay the underused housing tax for the residential property for the calendar year, unless your ownership of the residential property is exempt from the tax for the calendar year.

Even if your ownership of a residential property is exempt from the underused housing tax for a calendar year, as an affected owner, you still have to file a return for the residential property.

Do I have to keep any records?

Every affected owner of a residential property must keep records to enable the determination of their obligations and liabilities under the UHTA. Generally, you must keep the records for six years from the end of the year to which they relate.

What happens if you don't file a return for a property?

There are significant penalties if you fail to file an annual return when it is due.

Individuals are subject to a minimum penalty of $5,000, and corporations are subject to a minimum penalty of $10,000.

Are there any other exemptions?

Where certain conditions are met, your ownership of a residential property may be exempt from the underused housing tax if the property is any of the following:

• a vacation property that is located in an eligible area of Canada
• used as a primary place of residence or for qualifying occupancy
• not suitable for year-round use
• seasonally inaccessible
• uninhabitable during the calendar year
• newly constructed

Your ownership of a residential property may also be exempt if you are any of the following:

• a partner of a specified Canadian partnership, a trustee of a specified Canadian trust or a specified Canadian corporation
• a new owner
• a deceased individual, or their personal representative or co-owner

When did this come into effect?

The UHTA received royal assent on June 9, 2022 and the underused housing tax took effect on January 1, 2022.

Questions?

If you have any questions about this article, the underused housing tax, or any of our related services, please contact one of our tax experts or complete the contact form below.