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What is the Underused Housing Tax?

Insights
| 2/7/2023
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The underused housing tax (UHT) is a Federal tax applied to vacant or underused housing in Canada, effective January 1, 2022. Generally speaking, this tax targets foreign property owners, but certain Canadian owners may be impacted, see the examples below.

There are significant penalties for affected owners who fail to file an annual return when it is due, with a minimum penalty of $5,000 for individuals who are affected owners, and $10,000 for owners other than individuals.

Who Has to File a Return?

A Form UHT-2900 (Underused Housing Tax Return and Election Form) needs to be filed for each of your properties when all of the following conditions are met on December 31 of a calendar year:

  • The property is a residential property
  • You are an owner of the residential property
  • You are not an excluded owner of the residential property

Note: Affected owners required to file a return may not have to pay the UHT if they are exempt. Details surrounding the exemptions can be found here.

What is a Residential Property?

Residential property is defined as property that is either of the following:

  1. A detached house or similar building containing no more than three dwelling units, along with any appurtenances and the related land.
  2. A semi-detached house, rowhouse unit, residential condominium unit or other similar premises, along with any common areas, appurtenances, and the related land.

Definitions:

  • Dwelling Unit: a residential unit is suitable to be used as a residence containing a private kitchen facility, private bath, and private living area.
  • Related Land: land that is subjacent or immediately contiguous to a residential building and considered reasonably necessary for the building’s residents’ use and enjoyment. Generally, up to a half hectare of land is included as residential property.
Examples of Residential Properties
  • Detached houses
  • Duplexes/triplexes
  • Laneway/coach houses
  • Cottages/cabins/chalets (not for commercial use)
  • Semi-detached houses
  • Residential condominium units
  • Rowhouse units/townhouses
Examples of Exempt Residential Properties

Affected owners of a residential property may be exempt from the UHT if the property is any of the following:

  • A vacation property located in an eligible area of Canada
  • Used as a primary place of residence or for qualifying occupancy
  • Not suitable for year-round use
  • Seasonally inaccessible
  • Uninhabitable during the calendar year
  • Newly constructed
Examples of Non-Residential Properties
  • Quadruplexes (buildings that have four dwelling units)
  • High-rise apartment buildings
  • Buildings that are primarily (more than 50%) for retail or office use and that contain an apartment
  • Commercial condominium units
  • Boarding houses and lodging houses
  • Commercial cottages, cabins, and chalets (those used to provide lodging to several unrelated business or leisure travellers at once in separate cottages, cabins, or chalets)
  • Hotels, motels, inns, and bed and breakfasts
  • Floating homes
  • Mobile homes
  • Park model trailers
  • Travel trailers, motor homes, and camping trailers

Who is an Owner?

You would be considered an owner for the purposes of the UHT if any of the following apply:

  • You are identified as an owner of the property in the land registration system where the property is located
  • You are considered an owner of the property based on such a land registration system
  • You are a life tenant under a life estate in the property
  • You are a life lease holder of the property
  • You are a lessee with continuous possession of the land on which the property is situated under a long-term lease

You are not considered an owner of a residential property if you give continuous possession of the land on which the property is situated to either of the following:

  • A life lease holder of the property
  • A lessee under a long-term lease

What is a long-term lease?

A long-term lease is a lease of land that meets either of the following conditions:

  • The lease provides continuous possession of the land for a period of at least 20 years

OR

  • The lease contains an option to purchase the land
Affected Owners

If you are an owner of a residential property in Canada on December 31 of a calendar year and you do not meet the criteria of an excluded owner of the residential property on that date, you are required to file an annual return.

If you are an individual and meet any of the following criteria, you may be classified as an affected owner and required to file an UHT return:

  • Individuals who are not citizens or permanent residents of Canada and who are owners of residential property in Canada in any capacity.
  • Individuals who are citizens or permanent residents of Canada and owners of residential property in Canada in either of the following capacities:
  • As a trustee of a trust (other than as a personal representative of a deceased individual and other than as a trustee of a mutual fund trust, real estate investment trust, or Specified investment flow-through (SIFT) trust for Canadian income tax purposes).
  • A partner of a partnership

If a non-individual owner meets any of the following criteria, it may be classified as an affected owner and required to file an annual return:

  • Corporations that are incorporated otherwise than under the laws of Canada or a province and are owners of residential property in Canada in any capacity.*
  • Corporations that are incorporated under the laws of Canada or a province whose shares are not listed on a Canadian stock exchange designated for Canadian income tax purposes and are owners of residential property in Canada in any capacity.
  • Corporations that are incorporated under the laws of Canada or a province without share capital and are owners of residential property in Canada in any capacity.

*Any capacity means that a person is an owner of residential property in Canada in any of the following capacities: their own right; as a trustee of a trust (including as a personal representative of a deceased individual, but excluding as a trustee of a trust that is a mutual fund trust, real estate investment trust or SIFT trust for Canadian income tax purposes); or as a partner of a partnership.

Excluded Owners

Excluded owners do not have to file a UHT return or pay the UHT.

  • You are an excluded owner of a residential property if you are any of the following:
  • An individual who is a citizen or permanent resident of Canada, unless you are an owner of the residential property as either of the following:
  • A trustee of a trust (except if you are the personal representative of a deceased individual, in which case you are an excluded owner of the residential property)
  • A partner of a partnership
  • An owner of the residential property as a trustee of any of the following trusts:
  • Mutual fund trust for Canadian income tax purposes
  • Real estate investment trust for Canadian income tax purposes
  • SIFT trust for Canadian income tax purposes
  • A publicly traded Canadian corporation
  • A registered charity
  • A cooperative housing corporation
  • Certain municipal organizations, public institutions, and government bodies
  • An Indigenous governing body or corporation wholly owned by such a body

How is the UHT Calculated?

The UHT is determined using the following formula

[1% of property value] X [person’s ownership %]

The value of a residential property can be determined using one of two methods:

1. Taxable Value

The greater of:

a. The assessed tax value for the year under the related property tax assessment 

b. The most recent sale price on or before December 31 of the calendar year

2. Fair Market Value

Fair market value can only be used if the owner files an election to use this method for the property (the election is included on Form UHT-2900). The owner must obtain an appraisal of the property by an accredited, arm’s length real estate appraiser.

The CRA continues to provide updates and technical information on the UHT. Stay up-to-date and access CRA support here. 

 

This article has been published for general information. You should always contact your trusted advisor for specific guidance pertaining to your individual tax needs. This publication is not a substitute for obtaining personalized advice.

If you are looking for Tax Services, Crowe MacKay provides personalized support. Our tax professionals will help you maximize tax-planning opportunities and ensure the minimum amount required by law is paid.

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