Business meeting on Underused Housing TaxWhat You Need to Know About The New Underused Housing Tax

Update: The Canada Revenue Agency announced on March 27, 2023 that they will provide transitional administrative relief for the 2022 tax year. Even though the deadline for filing the UHT return and paying the UHT payable is still May 1, 2023, no penalties or interest will be applied for UHT returns and UHT payments that the CRA receives by October 31, 2023.

Do you own a residential property that you aren’t using? Or is a house part of a corporate trust, private corporation, or partnership in which you are named?

You may need to file a return to meet the requirements for the federal government’s new Underused Housing Tax (UHT).

What is Underused Housing Tax?

Enacted on June 9, 2022, the UHT is an annual one-percent tax on underused or vacant residential real estate as part of a larger strategy to address housing affordability. Originally positioned as a tax on non-residents, the final legislation impacts Canadian property owners too.

What is considered “residential property” under UHT rules?

The definition under UHT is somewhat narrow and does not include multi-unit buildings like high-rise apartments, hotels, and quadruplexes. However, the following fall under the rules:

  • Detached and semi-detached houses
  • Duplexes and triplexes
  • Individual condominium and row-house units
  • Separate or divided housing, such as a coach house
  • Cottages, chalets, and cabins are not considered commercial property

Who must file the Underused Housing Tax return?

Residential property owners who are:

  • Citizens of other countries and non-permanent Canadian residents.
  • Private corporations, partnerships, and trusts own Canadian residential property.

Are there exceptions?

Yes, including the following “excluded owners” of residential property:

  • Registered charities
  • Indigenous governing bodies and the corporations they own
  • Individual trustees of a mutual fund trust, real estate investment trust, or specified investment flow-through trust
  • Canadian corporations with shares listed on a Canadian stock exchange
  • Canadian GST/HST cooperative housing corporations

Additionally, further exemptions may apply based on:

  • The type of property owner, including individuals who are new owners of residential property in the calendar year; owners who died and their co-owners and personal representatives; specified Canadian corporations; and partner of a specified Canadian partnership or a trustee of a specified Canadian trust.
  • The property’s availability includes newly constructed, seasonally inaccessible residential properties, and those considered uninhabitable due to hazardous conditions, disasters, or renovations.
  • The property’s location, including vacation homes in certain areas that are inhabited by the owner and their spouse or common-law partner for a minimum of 28 days in a calendar year. (You can determine if your home is in a designated area by entering your postal code on this site.)
  • The property’s occupants, including a primary residence used by you, your spouse or common-law partner, or a child attending a designated learning institution or one that is occupied at least 180 days in a calendar year during a qualified occupancy period.

Keep in mind that you may not qualify for an exemption above if you or your spouse or common-law partner own multiple residential properties and do not elect to designate one of those homes as your primary place of residence.

How much will I owe?

First, you need to know the value of the property. In most cases, you can simply use its taxable value. If you prefer to use its fair market value, you will need to file an election with the CRA, along with an appraisal report prepared by an accredited professional real estate appraiser.

Once you know the value of the property, simply multiply the property’s value by 1% to determine the total tax due, and multiply that amount by your percentage of ownership. Then enter that information on your Underused Housing Tax return.

What if meet the qualifications for an exemption and don’t owe anything?

Even if your property is exempted, you must file a return by April 30, 2023.

What happens if I don’t file?

Penalties for not filing are substantial. Individual owners are subject to a $5000 minimum penalty, and corporations are subject to a $10,000 minimum penalty. So far, CRA has not

said it will waive penalties for non-compliance in 2022, the first year where the tax applies.

What if I own a short-term rental property, such as an Airbnb?

In many cases, you will be required to pay UHT tax. To be exempt, the property must be occupied for 180 days in a year. However, rentals that are inhabited for periods of less than 30 consecutive days don’t count as “occupied.” Even if your Airbnb, VRBO, or other short-term rental property was leased all 365 days of 2022, none of those days would count if you rented it for less than a month at a time, which is the case with most of these types of properties.

Navigating these new rules is challenging, to say the least. If you have questions or need help determining whether you must file a return and/or pay UHT this year, contact us for assistance.

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