To combat the housing crisis, effective January 1, 2022 the Federal Government introduced the Underused Housing Tax (UHT) which requires certain non-Canadian owners (and, in certain circumstances, some Canadian owners) of residential property in Canada to file an annual return to report their ownership and, subject to certain exemptions, pay a 1% tax on the property’s value (the UHT).

Filing Requirements

If you own residential property situated in Canada, you must file a UHT return (form UHT-2900) by April 30 each year, unless you are an excluded owner.

‍Residential property includes (but is not limited to):

• Detached houses
• Semi-detached houses
• Rowhouse units
• Condomonium units.

An excluded owner is defined as:

• An individual that is a Canadian citizen or permanent resident
• A Canadian Corporation that is publicly traded
• A registered charity
• A cooperative housing corporation
• Municipalities, Indigenous governing bodies, governments
• Trusts that are publicly traded
• Certain public service bodies (e.g. universities).

If you meet any of the above criteria, you are an excluded owner and do not have any filing obligations. If you do not meet any of the above criteria, you must file the UHT return and assess yourself for the tax owing.

The deadline to file for the previous tax year is April 30 of the current tax year.

Note: this means if you own residential real estate held by a private corporation, you are required to file the UHT return.

Exemptions to the tax

The Government of Canada has provided some exemptions to the UHT. If you fall within the exemptions listed below, you will not be liable for the tax, but you will still be required to file the UHT return.

1. Primary Residence

The principal residence of the individual, their spouse or common-law partner, or their child who is attending a designated institution (university) is not subject to the UHT.

‍2. Qualifying Occupancy

‍A qualifying individual must occupy the property for at least one month and a total of 180 days/6 months in a year. A qualifying individual is:

• An arm's length individual with a written rental agreement in place
• A non-arm's length individual with a written rental agreement in place, and the rent is not below fair rent for that property
• An individual owner, their spouse or common-law partner, who is in Canada for work under a Canadian work permit, and who occupies the property for that purpose
• An individual owner, their spouse or common-law partner, parent, or child who is a Canadian citizen or permanent resident.

3. Vacation Property

‍The property is located in an eligible area of Canada and used by the owner, their spouse or common-law partner for at least 28 days in a year. You can verify if the property is in an eligible area at the Government of Canada’s Website.

‍4. Specified Canadian Corporation

‍A corporation that does not have foreign shareholders (either other foreign corporations or individuals) that own 10% or more of the votes and value of the corporation.

‍5. Specified Canadian Partnership

‍Each partner of the partnership, on December 31, is an excluded owner or a specified Canadian corporation as described above.

‍6. Specified Canadian Trust

‍Each beneficiary that has a beneficial interest in the trust is an excluded owner or a Specified Canadian corporation, as mentioned above, on December 31.

‍7. New Owner

‍An owner when they first acquired the property during the year and did not own the same property at any time during the nine prior years.

‍8. Death of the Owner

‍The owner died in the current or prior year, the personal representative of the deceased owner who did not own the property in prior years, or a co-owner where the property was co-owned by the deceased that held at least 25% of the property.

‍9. Availability of the Property

‍UHT is not applied if the property is:

• Under construction and not substantially completed
• Construction is done after March, and the property is put for sale to the public
• Not suitable to be lived in
• Uninhabitable due to disaster or major renovations.

If you do not meet any of the exemptions in this listing, you will be charged UHT.

Calculation of the UHT

The UHT is calculated at the rate of 1% on the taxable value of the property, which is generally the greater of (a) its value as assessed by a government agency; and (b) the property’s most recent sale price on or before December 31 of the calendar year.

Alternatively, a person may elect to use the fair market value of the property at any time on or after January 1 of the calendar year and on or before April 30 of the following calendar year. The fair market value must be supported by a written appraisal and provided to the Canada Revenue Agency upon request.

Penalties

Be sure to file the UHT on time. If you do not file the UHT, the penalties are the GREATER of:

• $5,000 for individual owners
• $10,000 for non-individual owners (corporations)
• Or the total of:
  • 5% of your UHT payable for the residential property for the calendar year, plus
  • 3% of your UHT payable for the residential property for the calendar year, multiplied by the number of complete calendar months that the return is past due.

The penalties are in addition to any amounts owing from the UHT return and apply even if you do not owe any tax.

If you are still unsure about whether you need to file a UHT return (UHT-2900), or if you need any help filing your returns, contact us to book a meeting with our team.