On June 9, 2022, the federal Underused Housing Tax Act became effective retroactive to January 1, 2022. The Underused Housing Tax (“UHT”) is much broader than anticipated, and you may have a filing obligation if you owned residential property in Canada on December 31, 2022.
As discussed in detail below, most Canadian private corporations, partnerships and trusts that owned residential property on December 31, 2022 must file an annual UHT return by May 1, 2023, or be subject to a minimum penalty of $10,000 per return.
If you are an “excluded owner”, you do not have any UHT filing obligations. An excluded owner includes, but is not limited to:
- An individual who is a Canadian citizen or permanent resident of Canada (except certain trustees and partners of a partnership);
- A registered charity for Canadian income tax purposes; and
- A cooperative housing corporation.
If you are not an excluded owner, you are considered an “affected owner” and must file a UHT return for each residential property that you own in Canada. Affected owners must file a UHT return even if there is an exemption from paying the tax. The UHT return is due May 1, 2023.
There are significant penalties if you fail to file the UHT return when it is due. Affected owners who are individuals are subject to a minimum penalty of $5,000 per return. Affected owners that are corporations are subject to a minimum penalty of $10,000 per return.
An affected owned 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 Canadian private corporation;
- a Bare Trust Nominee Corporation;
- a corporation that is incorporated outside Canada; and
- a Canadian corporation without share capital.
Although affected owners are required to file a UHT return, there are several exemptions available that may preclude tax from being payable. The exclusions are based on the type of owner, the availability of the residential property, the location and use of the residential property, and the occupant of the residential property. Even if an exemption applies, the reporting obligations for each residential property are onerous.
If you are an affected owner and your ownership of a residential property does not qualify for an exemption from the UHT for a calendar year, you are subject to a 1% tax on the value of the residential property.
Under the UHT, residential property is defined as property that is either:
- a detached house or similar building that contains not more than three dwelling units, along with any appurtenances and the related land; or
- a semi-detached house, rowhouse unit, residential condominium unit or other similar premises, along with any common areas, appurtenances and the related land.
A dwelling unit is a residential unit that contains private kitchen facilities, a private bath and a private living area.
If you have any questions or would like assistance with meeting your UTH filing obligations, please contact us to discuss your situation as soon as possible.