As of January 1, 2022, Canada has introduced an annual 1% underused housing tax (UHT) on the ownership of vacant or underused housing in Canada. The tax, part of the Underused Housing Tax Act (UHTA), is payable by those who own vacant or underused housing in Canada but are not Canadian tax residents or Canadian citizens or permanent residents from an immigration perspective. The tax is based on the “taxable value” of the property, which is a defined term under the UHTA. The vast majority of Canadian citizens and permanent resident owners of residential property in Canada should meet the definition of an “excluded owner” and, therefore, should not have any obligations and liabilities under the UHTA. However, the UHT is payable by certain Canadian owners of housing in limited situations.
Summary and Takeaways
Canada enforces an annual 1% tax on underused or vacant housing. It must be paid by those who own such property in Canada but aren’t Canadian tax residents, citizens, or permanent residents. Owners of property who are affected by the tax must also file an annual return for UHT-2900, and pay the tax in a timely manner. But there are exclusions to the tax for those who are eligible.
- For example, you may be exempt if your property has limited seasonal access.
- Canadian corporations are usually exempt if they have less than 10% of their votes or equity value owned by foreign individuals or corporations.
- You may be exempt if the property was uninhabitable for 60 consecutive days due to a natural disaster or under construction for an extended period of time.
- All the various UHT exemptions are outlined in sections 4, 5, and 6 of the UHT-2900 return, and the list is rather extensive.
- Familiarize yourself with those (which are detailed in our article) to learn if you are eligible to avoid the tax.
Starting with the 2022 calendar year and for each following calendar year, owners of housing in Canada have to determine their obligations and liabilities under the UHTA. Those who meet the definition of an “affected owner” must file an annual return (UHT-2900 – Underused Housing Tax Return and Election Form) and pay the UHT by April 30th of the following calendar year. Other affected owners have to file the annual UHT-2900 return, but should not have to pay the UHT. Those who meet the definition of an “excluded owner” do not have to file an annual UHT-2900 return nor do they have to pay the UHT. Below is a summary of these definitions and further details surrounding the UHT:
- Owner – a person is considered the owner of a residential property located in Canada if they meet any of the following criteria:
- They are identified as an owner of the residential property in the land registration system where the residential property is located
- They are a life tenant under a life estate in the residential property
- They are a life lease holder of the residential property
- They are a lessee who has continuous possession of the land on which the residential property is situated, under a long-term lease.
You are not an owner of a residential property if you give continuous possession of the land, on which the residential property is situated, to either of the following:
- a life lease holder of the residential property
- a lessee under a long-term lease
- Affected owner – This is a person who is an owner of a residential property, but who is not an excluded owner of the residential property
- Excluded owner – This is a person who, on December 31 of a calendar year, meets any of the following:
- Is the government of Canada or a province, or an agent of the government of Canada or a province
- Is an owner of a residential property as a trustee of any of the following trusts:
- a mutual fund trust for Canadian income tax purposes
- a real estate investment trust (REIT) for Canadian income tax purposes
- a specified investment flow-through trust (SIFT) for Canadian income tax purposes
- Is an individual who is a Canadian citizen or permanent resident of Canada, unless the individual is an owner of the residential property as:
- a trustee of a trust (except if the individual is the personal representative of a deceased individual, in which case the individual is an excluded owner)
- a partner of a partnership
- Is a Canadian corporation whose shares are listed on a Canadian stock exchange designated for Canadian income tax purposes
- Is a registered charity for Canadian income tax purposes
- Is a cooperative housing corporation, hospital authority, municipality, para-municipal organization, public college, school authority, or university for GST/HST purposes
- Is an Indigenous governing body or a corporation wholly owned by an Indigenous governing body
- Taxable value – the taxable value of a residential property for a calendar year is the greater of:
- The “assessed value” in respect to the residential property, or
- The residential property’s most recent sale price on or before December 31 of the calendar year
- Assessed value – This is the tax value established by == Canadian federal or provincial authorities. The assessed value is the full assessed value of the parcel of real or immovable property, of which the residential property is the whole or a part..
Who has to file an annual UHT-2900 return?
Persons who, on December 31 of a calendar year, are affected owners of residential properties that are situated in Canada have to file a UHT-2900 return for each residential property they own that is situated in Canada. UHT-2900 Underused Housing Tax Return and Election Form
Persons who, on December 31 of a calendar year, are excluded owners of residential properties that are situated in Canada do not have to file UHT-2900 returns.
Who has to pay the UHT?
Persons who, on December 31 of a calendar year are affected owners of residential properties that are situated in Canada have to pay the UHT on each residential property situated in Canada that they own−unless their ownership of a particular residential property is exempt for the calendar year. All UHT exemptions are outlined in parts 4, 5, and 6 of the UHT-2900 return, but some of the most common are as follows:
- Primary place of residence – the residential property is the primary place of residence of:
- the owner or their spouse or common-law partner (collectively referred to as “spouse”), or
- a child of the owner or owner’s spouse who occupies the residential property for authorized study at an institution designated to host international students
- Qualifying occupants – the residential property is occupied by one or more qualifying occupants in relation to the owner for at least 180 days of the year (counting only the days of the qualifying occupancy period in the year)
- A qualifying occupancy period means a period of at least one month in the calendar year during which a qualifying occupant continuously occupies a dwelling unit that is part of the residential property
- A qualifying occupant in relation to the owner includes:
- an arm’s length tenant, under a written agreement
- a non-arm’s length tenant who is given continuous occupancy of the dwelling unit under a written agreement for a fair amount of rent
- an individual owner or their spouse who is in Canada to pursue authorized work under a Canadian work permit and who occupies the dwelling unit for that purpose
- a spouse, parent or child of the owner who is a citizen or permanent resident
- If the owner and their spouse jointly own multiple residential properties, their ownership may not qualify for the exemptions for either primary place of residence or qualifying occupancy, unless they file an election with the Canada Revenue Agency (CRA) to designate only one property for the exemption. The election must be filed as part of the UHT-2900 return by April 30 of the following calendar year. Where the owners own the property jointly, they must also make the election jointly.
- Where an owner or their spouse elect to designate one of the multiple properties as a primary residence, they cannot be qualifying occupants of any other properties they may own.
- Limited seasonal access – the property is not a suitable residence year-round or not accessible during part of the year
- Disaster or hazardous condition – the property is uninhabitable for at least 60 consecutive days in the calendar year due to a disaster or hazard caused by circumstances beyond the owner’s reasonable control, and the property was not exempt in a previous year for the same reasons
- Renovation – the property qualifies for the exemption for residential properties that are uninhabitable for at least 120 consecutive days in the calendar year, due to a renovation done without unreasonable delay, and the property was not exempt in a previous year for the same reasons
- Under construction – the property was not substantially completed (generally, 90% or more) before April of the calendar year, or it was substantially completed in January, February, or March, offered for sale to the public during the year, but never occupied by an individual
- Year of acquisition – the owner first acquired the residential property during the year and did not own the same property during any of the nine preceding years
- Deceased owner – deceased owners and their personal representatives are exempt in the year of the death of the owner or the following year
- Surviving joint owners – surviving joint owners with at least 25% interest in the property are exempt in the year of the deceased owner’s death
- Specified Canadian corporations – generally, Canadian corporations are exempt if they have less than 10% of their votes or equity value owned by foreign individuals or corporations
- Specified Canadian partnerships – persons who own the property solely in their capacity as a partner of a specified Canadian partnership, which is one that has, on December 31, only excluded owners or specified Canadian corporations as partners
- Specified Canadian trusts – a person who owns residential property solely in their capacity as a trustee of a specified Canadian trust, which is a trust that owns a residential property where each beneficiary with an interest in the property is, on December 31, an excluded owner or specified Canadian corporation
Persons who, on December 31 of a calendar year, are excluded owners of residential properties that are situated in Canada do not have to pay the UHT on their residential properties.
Requirement for a Canadian identification number to file UHT-2900
Everyone including Canadian citizens, permanent residents, and those who are not citizens or permanent residents must use their Social Insurance Number (SIN) when filling their UHT-2900 return. If they do not have a SIN, they must use an individual tax number (ITN). If they do not have an ITN they must apply for one using Form T1261 – Application for a Canada Revenue Agency Individual Tax Number (ITN) for Non-Residents.
A corporation must use a business number (BN) with an Underused Housing Tax (RU) program account identifier to file their return. If the corporation already has a BN, they will have to register their RU program account before they can file a return. If the corporation does not have a BN they must apply for one and register their RU program account before they can file a return. Corporations will be able to register their RU program account online after February 6, 2023.
Penalties for late filing of a UHT-2900
If you are an affected owner and you do not file your UHT-2900 return for a residential property for a calendar year by April 30 of the following calendar year, you must pay a penalty that is the greater of:
- $5,000 for affected owners that are individuals, or, $10,000 for affected owners that are not individuals (such as corporations or trusts), and
- The amount that is the total of:
- 5% of your UHT payable for the residential property for the calendar year
- 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
If a UHT-2900 return for a calendar year is not filed by December 31 of the following year, the determination of the UHT payable for the residential property for the calendar year for purposes of calculating the late-filing penalty will be made without the benefit of some exemptions, meaning that even if you are exempt for the UHT, you must still pay the late filing penalty.
If you do not pay an amount of UHT owing for a calendar year to the Receiver General by April 30 of the following calendar year, interest will be calculated and added to that amount. Interest will be compounded daily at the specified rate, calculated starting on the first day after the day on or before which the amount was required to be paid and ending on the day the amount is paid.
The UHT is a new tax starting in the 2022 calendar year, and there are still many variances to be worked out. However, given the steep potential penalties, it is prudent to assess your filing obligations and ensure that a UHT-2900 is properly filed by the 2022 filing deadline of May 1, 2023 (April 30, 2023 is a Sunday). There are also provincial and city speculation and vacancy taxes that were recently brought into existence that could impact you. For details, see our blog titled The British Columbia (BC) Speculation and Vacancy Tax. If you own property in Canada and would like to assess your unique situation, please contact Cardinal Point.