The Government of Canada has introduced an underused housing tax on the ownership of vacant or underused housing in Canada. This annual federal tax of 1% took effect on January 1, 2022.
The Underused Housing Tax generally applies to foreign national owners of housing in Canada. However, this tax will apply to some Canadian owners.
You have to file a return (which is Form UHT-2900, Underused Housing Tax Return and Election Form), for each of your properties in Canada for which all of the following conditions are met on December 31 of a calendar year:
Generally, a residential property is defined as a property that is either:
A dwelling unit is a residential unit that contains private kitchen facilities, bath and living area*
The above definition of residential property includes cottages, apartments and townhouses.
Examples of buildings that are not considered residential properties include:
Anyone who is not an excluded person, who owns residential property in Canada (also known as affected owner) has to file a return. This includes the following:
If an individual owns a residential property in Canada as a partner of a partnership, then that individual must file a UHT return.
According to the provincial legislation in Ontario regarding partnerships, owning a property jointly with another individual does not of itself create a partnership, whether the owners do or do not share in the profits made by the use thereof.
That means merely owning a property with your spouse, family member or another is generally not considered to be a partnership. Most of the time, CRA will consider you to be a co-owner. There must be business in common for there to be a partnership.
Although one may be required to file a UHT return, there are several tax exemptions you can take advantage of to reduce your tax to zero. Below are the main exemptions:
Only owners who are individuals may qualify for the exemption for primary place of residence, which is a situation where a dwelling unit that is part of the residential property is occupied by an owner or certain members of the owner’s family.
A specified Canadian corporation is a corporation incorporated under the laws of Canada or a province where any combination of Canadian citizens, permanent residents and corporations incorporated under the laws of Canada or a province own more than 90% of the shares of the corporation.
As an example, a private Canadian corporation owned 100% by a Canadian citizen or permanent resident is a specified Canadian corporation.
Residential property owners that are affected by the Underused Housing Tax (UHT) will have until April 30, 2024 to file their returns for the 2022 calendar year without being charged penalties or interest.
The UHT return for the 2023 calendar year will also be due on April 30, 2024. Every calendar year after will be due by April 30 of the following calendar year.
If you fail to file your return on time, you have to pay a penalty that is the greater of the two following amounts:
Affected owners that have to file a UHT return but have no taxes payable due to a tax exemption has to pay the penalty of $5,000 if an individual or $10,000 if not (such as a corporation).
If your ownership of a residential property does not qualify for an exemption from paying the tax for a calendar year, the amount of the tax will be the value of the property multiplied by 1%, multiplied by your ownership percentage.
The value of the property is the greater of the most recent sale price and the assessed value of the property for property tax purposes.
As an example, if you own a property with a value of $500,000 and have 50% ownership percentage, then the UHT is $2,500.
In order to file a UHT return, you will need the following information:
This bulletin does not cover all examples of buildings that are not residential properties, all tax exemptions and there is no list of excluded owners. Please refer to CRA publications for further information on all these points.
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