As part of the 2021 Federal budget the Government of Canada introduced the underused housing tax (UHT) which received royal assent on June 9, 2022, with an effective date of January 1, 2022. The UHT is a 1% tax on the value of vacant or underused housing in Canada. This tax is aimed at non-residents who own residential housing personally or through a business.
You may think that because you are a resident of Canada that this tax does not apply to you or your business, however, there are situations that can apply to Canadian residents which may require you to file the UHT return, however, generally there will be no tax owing.
If you have a corporation that owns residential property, the corporation is required to file the UHT return annually.
If you own property (other than your principal residence) as a Canadian resident individual, then you will be considered an ‘excluded’ owner and may not be required to file the UHT return. Like all things tax, there are exceptions to this rule which will require you to file a UHT return annually:
- If you own the property as a partner in a partnership or as a trustee of a trust (except if the individual is the personal representative of a deceased individual), you may be required to file a UHT return.
You can own rental property with one or more people, for example your spouse or common law partner, and be considered owing the property as co-owners if the property is owned as an investment. In some cases, if you are a co-owner, you have to determine if a partnership exists and if you are required to file the UHT return. A partnership is a relationship between two or more people carrying on a business to make a profit. Therefore, in determining if you own property as a co-owner or as a partnership you need to review the facts, such as number of properties owned, amount of involvement in the properties etc.
As you can appreciate, determining whether or not you are an affected owner for the UHT tax can be complex and we urge you to contact us to discuss your current situation.
If it is determined that you are an affected owner and need to file a UHT return. In the majority of situations, even if you have to file a UHT return there will likely be no taxes owing due to exemptions included in the return. However, if you are an affected owner and do not file the UHT return on time, you will incur a penalty that is the greater of $5,000 for individuals or $10,000 for corporations, or 5% of UHT payable for the calendar year.
As noted above, the UHT was effective starting January 1, 2022. For the 2022 calendar year, CRA has extended the filing deadline to October 31, 2023.
If you think you may be considered an affected owner, please contact your DMC representative for assistance.