If you own residential properties in Canada the Underused Housing Tax (UHT) may impact you. The filing and payment deadline for the 2022 calendar year has been extended by CRA to April 30, 2024, without being charged penalties or interest. Find out if you need to prepare.

What is it?

UHT is a federal housing tax imposed based on how your residential property is being used. Primarily aimed at non-residents of Canada, there are situations where the rules could apply to Canadian residents or citizens.

What is a residential property?

Residential properties in Canada include:

• Detached houses (containing up to 3 dwelling units)
• Semi-detached houses
• Rowhouse units
• Condo units
• Any other similar premises intended to be owned as a separate unit or parcel

Am I affected?

You are excluded from filing if the residential real estate is owned/held by a:

• Canadian citizen or permanent resident of Canada (held by an individual)
• Publicly traded Canadian corporation
• Trustees of various widely held trusts
• Registered charity
• Cooperative housing corporation
• Municipal organization, public institution, or government body

All other affected owners (including private corporations, partnerships, trusts, and non-resident and/or non-Canadian citizen individuals), are required to file an annual UHT return and pay UHT unless they meet an available exemption.

Am I affected but exempt?

An annual UHT return must be filed to claim the exemptions:

• Primary place of residence: for the owner, their spouse or common-law partner, or their children
• Qualifying occupancy: property is rented for at least 180 days in the year at fair market value
• Limited seasonal access: property not accessible year-round
• Disaster or hazardous condition: property uninhabitable for at least 60 consecutive days due to disaster or hazardous condition
• Renovation or construction: property uninhabitable for at least 120 consecutive days due to renovation or where construction was not substantially completed before April of the calendar year
• Construction of property for sale: property substantially completed after March of the year and offered for sale to the public
• Year of acquisition: property first acquired by the owner during the year
• Upon death of owner: applies to the year of owner’s death d and the following calendar year, extending to the personal representative of the deceased individual and surviving owners of jointly owned properties of which the deceased owned at least 25%
• Specified Canadian corporation: properties owned by a Canadian corporation with less than 10% foreign ownership
• Partner of specified Canadian partnership: properties owned in partnership where all members were either excluded owners or specified Canadian corporations
• Trustee of specified Canadian trust: properties owned by a trustee of a trust where all beneficiaries with an interest in the property were either excluded owners or specified Canadian corporations
• Prescribed area: properties located CRA prescribed zone and where the owner, spouse, or common-law partner resided in the property for at least 28 days in the calendar year

What do I do?

UHT rules require affected residential property owners to file an annual UHT return with CRA, even if they are exempt from the tax. The result is that many Canadian trusts, partnerships, and corporations that hold residential property are required to file an annual UHT return for each property owned, even if there is no tax payable. In addition, there are significant penalties that may apply if the UHT return is not filed on time.

Tax on property of affected owners who are not exempt is calculated as 1% of the market value of the property, pro-rated for your percentage of ownership.

UHT dates to consider

2023

• April 30, 2023: normal filing and payment deadline
• April 30, 2024: extended filing and payment deadline

2024

• April 30, 2024: normal filing and payment deadline

Penalties

Failure to file each annual UHT return can result in significant penalties, including:

• $5,000 for individuals
• $10,000 for owners that are not individuals (corporations, etc)

In addition, penalties and interest will apply on outstanding taxes that are not paid by April 30^th.

Wrapping it up

Understanding the details of UHT in advance of the first filing and payment deadline will ensure you are knowledgeable about UHT and the ever-changing tax landscape in Canada. If you are uncertain about whether or not you may be impacted by UHT, we would advise you to reach out to your accountant.

For the latest information on the UHT and recent extension, please visit the CRA website and read the news release from October 31, 2023.