Do you own residential property located in Canada? If so, you may have a new Underused Housing Tax (UHT) return to file by April 30, 2023. Missing this deadline could cost you at least $5,000 in penalties.
The Underused Housing Tax (UHT) is an annual 1% tax on the ownership of vacant or underused residential properties that are situated in Canada.
How will the Underused Housing Tax (UHT) affect you?
There are two questions to answer with regards to the Underused Housing Tax:
- Do you need to file a UHT return?
- If you do need to file, will there be tax to pay?
Underused Housing Tax (UHT) vs. Ottawa’s Vacant Unit Tax
Before we get into the specifics of the UHT, one clarification for those who own property in Ottawa. The City of Ottawa also introduced legislation this year that requires a declaration from property owners. This is separate and in addition to the Underused Housing Tax (UHT) introduced at the Federal level.
All City of Ottawa residential property owners are required to file a municipal declaration. More information about that here: https://ottawa.ca/en/living-ottawa/taxes/property-taxes/vacant-unit-tax
Some residential property owners also need to file a UHT return with Canada Revenue Agency in addition to the Vacant Unit Tax declaration they file with the city.
Do you need to file an Underused Housing Tax (UHT) return?
If you are not the legal owner of any residential real estate in Canada, you don’t have to file a UHT return, and you won’t have any UHT to pay.
If you are the owner of residential property in Canada, whether you need to file a return depends on what type of entity is the legal owner of the property:
|Type of owner||Do you need to file a UHT return?|
|Individual – Canadian citizen or permanent resident (Direct property ownership – not via a trust or partnership or corporation)||No|
|Individual – not a Canadian citizen or permanent resident||Yes|
|Trustee/Executor on behalf of an estate||Maybe (contact us for specifics)|
|Cooperative housing corporations||No|
|Other||Maybe – please contact us|
If you have a property with one of the types of owners listed above who is required to file, your return needs to be filed by April 30. If you meet an exemption discussed below, you may not have to pay the tax, but you still need to file a return before the deadline to avoid a penalty.
Determining whether you are required to file a return does not fall into our standard service offerings and is not our responsibility.
If you think you might need to file and would like our assistance, please contact your McCay Duff advisor as soon as possible. We will help you determine whether filing is required in your specific situation. If you decide to engage us to prepare this return on your behalf, please note that our minimum fee is $1,500 + HST per UHT return prepared.
Underused Housing Tax (UHT) return due date and penalties
UHT returns for 2022 are due on April 30, 2023. The minimum penalty for not filing on time is $5,000 for an individual and $10,000 for a corporation. This penalty will apply even if you don’t owe any tax.
Failing to file on time can also prevent the use of some of the tax exemptions, making late filing even more expensive.
Do you have to pay Underused Housing Tax (UHT) if you file?
Just because you need to file a UHT return doesn’t necessarily mean there will be tax to pay. There are four types of tax exemptions available. If you meet any of the exemptions listed, you won’t have to pay any UHT. You will, however, still need to file the return by the due date.
i) Exemptions based on the type of owner
If you meet one of the criteria below, this type of exemption is probably the easiest one to claim as it is straightforward, easy to prove, and unlikely to change from year to year. Your ownership of a residential property may be exempt from UHT for a calendar year if the legal owner of the property is one of the following:
- a specified Canadian corporation (a private corporation with less than 10% foreign ownership or control, based on value or voting rights)
- a specified Canadian partnership (each member of the partnership is either a specified Canadian corporation defined above or an excluded owner in that they would not be required to file a UHT return if they each owned the property individually)
- a specified Canadian trust (each beneficiary is either a specified Canadian corporation or an excluded owner)
- a new owner in the calendar year
- a deceased owner, or a co-owner or personal representative of a deceased owner
Smith Inc. is owned 50% by Mr. Smith and 50% by Mrs. Smith. Mr. & Mrs. Smith are both Canadian citizens. Smith Inc. owns a condo to generate rental income.
Smith Inc. is required to file a UHT return but will claim a tax exemption based on property ownership by a specified Canadian Corporation. Smith Inc. files its return before April 30, 2023, and has no UHT to pay.
Smith Family trust owns a townhouse. The beneficiaries of the trust are Smith Inc. from example 1 and members of the Smith family, all of whom are Canadian citizens. Before April 30, 2023, the trustee of the Smith Family trust will file a UHT return and claim an exemption based on ownership by a specified Canadian Trust. There will be no UHT to pay.
ii) Availability of the property
These exemptions are meant to capture the situation where the property is not available to be lived in year-round.
For example, a property under construction, seasonably inaccessible, uninhabitable due to a natural disaster or hazardous conditions, or under significant renovation might qualify for an exemption in this category.
iii) Occupant of the property
These exemptions are meant to capture the situation where someone uses the property as their primary residence. For example, suppose the property was the primary place of residence for you, your spouse or common-law partner, or your child while you/they were attending a designated learning institution. In that case, you could qualify for this exemption.
Other occupancy exemptions require the condition to be true for a minimum of 180 days during the year:
- A tenant not related to you occupying the property under a written agreement
- A tenant who is related to you who pays “fair rent” (defined by CRA as at least 5% of the property’s value per year) is occupying the property
- The home is being occupied by you, the owner, or your spouse/common-law partner while you/they are in Canada for work purposes, and the occupation is related to that purpose
- The home is being occupied by you, the owner, your spouse/common-law partner, your parent, or child who is a Canadian citizen or permanent resident
iv) Location and use of the property
This exemption is meant to capture rural vacation properties. If your property is located in an eligible area and was used for at least 28 days during the year by you or your spouse/common-law partner, you may qualify for this exemption. This UHT vacation property designation tool may help you determine if your property is in an eligible area.
Next steps if you need to file a UHT return
If you are the owner required to file a UHT return, be sure to file before the deadline. Even if you don’t owe any UHT because you fall into one of the exemptions, the penalties for not filing on time are too steep to ignore.
Contact McCay Duff LLP in Ottawa for more information on the Underused Housing Tax (UHT)
Please contact McCay Duff LLP‘s advisor directly if you believe that any residential property you own could be impacted, and, as the owner, you may be required to file a UHT return. You can also contact your McCay Duff LLP advisor for assistance, contact us online, or by telephone at 613-236-2367.