The federal Underused Housing Tax Act (the “Act”) was enacted on January 1, 2022, to implement a tax on underused residential properties owned on December 31st of each calendar year. The annual tax payable under the Act is 1% of the fair market value or the taxable value of the residential property and is due on April 30th of the following calendar year. Failure to make the necessary filings and payments can result in minimum penalties of $5,000 for an individual and $10,000 for a corporation or other entity.
Affected Owners of residential property are required to file an underused housing tax return (“UHT Return”) annually, either claiming an exemption or remitting the tax owing. Canadian citizens and permanent residents (among others) that beneficially own residential property are considered Excluded Owners (as defined in the Act) and are not subject to the tax or required to file a UHT Return. Canadian private corporations, partnerships, trusts and non-citizens (“Affected Owners”) that own residential property in Canada on December 31st are considered Affected Owners under the Act and are required to file a UHT Return annually. “Trusts” would include situations where an individual has registered their name on title with a parent or relative for estate planning purposes.
Once a party is determined to be an Affected Owner, they are required to file a UHT Return. However, they will not be required to pay the tax if they qualify for an exemption. There are several exemptions listed in the Act. Notably, a private Canadian corporation, partnership or trust that owns residential property will likely not have to pay any tax, but will still be required to file claiming they are exempt.
If you are an Affected Owner and own multiple residential properties, you are required to file a UHT Return for each residential property that you own on December 31st.
The Canada Revenue Agency (“CRA”) provided transitional relief for the first year of filing the UHT Return meaning that the deadline for filing the UHT Return remains April 30, 2023, but no penalties or interest will be applied for UHT Returns and payments that the CRA receives before November 1, 2023. If you are an Affected Owner and owned residential property on December 31, 2022, you are required to file a UHT Return, even if you no longer own the property.
All Affected Owners that owned residential property in Canada on December 31st, 2022, should contact their accountant or tax advisor to assist with completion of the UHT Return.
