The Underused Housing Tax was introduced by the Liberal government in an effort to reduce the amount of housing in Canada that remains vacant while owners ‘sit on the investment’ as real estate prices continue to rise.

The Underused Housing Tax is an annual 1% tax on the ownership of vacant or underused housing in Canada that took effect on January 1, 2022. The tax usually applies to non-resident, non-Canadian owners. In some situations, however, it also applies to Canadian owners.  All the information about the new tax is available at https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html.

If you are an excluded owner of a residential property in Canada, you have no obligations or liabilities under the Underused Housing Tax Act.

An excluded owner includes, but is not limited to:

• an individual who is a Canadian citizen or permanent resident – unless included in the list of affected owners below
• any person – including an individual who is a Canadian citizen or permanent resident – that owns a residential property as a trustee of a mutual fund trust, real estate investment trust, or specified investment flow-through trust (SIFT) for Canadian income tax purposes
• a Canadian corporation whose shares are listed on a Canadian stock exchange designated for Canadian income tax purposes
• a registered charity for Canadian income tax purposes
• a cooperative housing corporation for Canadian GST/HST purposes
• an Indigenous governing body or a corporation wholly owned by an Indigenous governing body

If you are not an excluded owner we refer to you as an affected owner and you have obligations under the Underused Housing Tax Act for your residential property in Canada. An affected owner includes, but is not limited to:

• an individual who is not a Canadian citizen or permanent resident
• an individual who is a Canadian citizen or permanent resident and who owns a residential property as a trustee of a trust (other than as a personal representative of a deceased individual)
• any person – including an individual who is a Canadian citizen or permanent resident – that owns a residential property as a partner of a partnership
• a corporation that is incorporated outside Canada
• a Canadian corporation whose shares are not listed on a Canadian stock exchange designated for Canadian income tax purposes
• a Canadian corporation without share capital

If you are an affected owner, you must file an Underused Housing Tax return for each residential property that you own in Canada on December 31. You must also pay the Underused Housing Tax, unless your ownership qualifies for an exemption for the calendar year. Even if your ownership qualifies for an exemption, you must still file an Underused Housing Tax return for the calendar year.

As everyone’s tax situation is unique, it is important that you ultimately clarify any questions you have with the Canada Revenue Agency directly.  They can be reached using the contact information available at https://www.canada.ca/en/revenue-agency/corporate/contact-information.html.

If your unit is being occupied by renters, then it stands to reason that the property is not ‘underused’, but you may still be required to file a declaration and there is a $10,000 penalty for not doing so.

When filling out your declaration, in Part 5 you will file for an exemption to payment of the tax citing the fact that the unit is rented out.  You will need to pick the applicable exemptions that pertain to your situation.  A copy of the form is available at https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/uht-2900/uht-2900-22e.pdf.

IMPORTANT UPDATE:

Underused Housing Tax penalties and interest waived

Announced March 27, 2023:

The Canada Revenue Agency (CRA) understands that there are unique challenges for affected owners in the first year of the Underused Housing Tax Act (UHTA) administration.

To provide more time for affected owners to take necessary actions to comply, the Minister of National Revenue is providing transitional relief to affected owners. The application of penalties and interest under the UHTA for the 2022 calendar year will be waived for any late-filed underused housing tax (UHT) return and for any late-paid UHT payable, provided the return is filed or the UHT is paid by October 31, 2023.

This transitional relief means that although the deadline for filing the UHT return and paying the UHT payable is still April 30, 2023, no penalties or interest will be applied for UHT returns and payments that the CRA receives before November 1, 2023.

To view the full release, follow the link: https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2023/underused-housing-tax-penalties-and-interest-waived.html