To encourage Canadian homeowners to make better use of their properties and to increase housing supply, the Government of Canada has enacted a new tax - the Underused Housing Tax (UHT).

The UHT is an annual 1% tax on the ownership of vacant or underused housing. The tax usually applies to non-resident, non-Canadian owners but in some cases, it also applies to Canadian owners.

HOW IT’S CALCULATED

The 1% tax is calculated on the greater of:

The assessed value by a property tax authority (i.e. MPAC)
The property’s most recent sale price on or before December 31 of the calendar year

EXCLUDED AND AFFECTED OWNERS

Whether you need to file a UHT return or not, depends on whether you are an ‘excluded owner’ or an ‘affected owner’.

EXCLUDED OWNERS

If you are an excluded owner of a residential property in Canada, you have no obligation to file a return or pay taxes under the UHT Act.

The most common examples of excluded owners include, but are not limited to:

An individual who is a Canadian citizen or permanent resident (many in Canada will fall into this bucket, and as such, there is nothing to worry about)
Publicly traded companies
Registered charities for Canadian income tax purposes
You have title to the property through your capacity as a trustee of various widely held trusts

Important: Privately-held corporations that own a property (read more below about what constitutes a ‘Property’) do not fall into the ‘excluded owners’ list and will need to file a UHT return (although they may be exempt from paying tax).

AFFECTED OWNERS

If you are not an excluded owner, you are referred to as an affected owner.

The most common examples of affected owners include, but are not limited to:

An individual who is not a Canadian citizen or permanent resident
A Canadian corporation whose shares are not listed on a Canadian stock exchange (i.e. privately held corporations)
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

UHT RETURN AND TAXES

Affected owners must file an Underused Housing Tax Return for each residential property that is owned in Canada on December 31. The UHT return is due on April 30 of each year based on the preceding calendar year.

Important: If you are exempt from paying taxes (read below) you will still need to file a UHT return.

The most common examples of exemptions include, but are not limited to:

Corporations with less than 10% foreign ownership
The property is the primary place of residence for you or your spouse or common-law partner, or for your child who is attending a designated learning institution
The property is newly constructed
The property is not suitable to be lived in year-round, or seasonally inaccessible
You are a partner of a specified Canadian partnership, or a trustee of a specified Canadian trust
You are a new owner in the calendar year

PENALTIES

The penalties for not filing are punitive. A person who fails to file the UHT Return as required under the UHT Act is subject to a minimum penalty of CA$5,000 if the person is an individual or CA$10,000 in all other cases (i.e. corporations). Other penalties may apply as well.

PROPERTIES AFFECTED BY THE UHT (include but are not limited to)

Semi-detached and detached houses
Rowhouse/townhouse units
Condominiums

FINAL THOUGHTS

Because of the complicated nature of these rules, certain persons may be considered affected owners without realizing it. If you have any questions, please contact us.

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