The Underused Housing Tax (UHT) – What You Need to Know
Updated on February 17, 2024 to reflect changes proposed in the 2023 Fall Economic Statement
The Underused Housing Tax Act included in Bill C-8 received Royal Assent on June 9, 2022. The UHT is the first federal statute designed to discourage foreign ownership of vacant Canadian real estate properties.
Effective January 1, 2022, the 1% Underused Housing Tax (UHT) is imposed on every person who is an owner1 (other than an excluded owner) of a residential property in Canada on December 31 of a given calendar year. An “excluded owner” includes but is not limited to a public corporation; an individual who is a Canadian citizen or permanent resident; a registered charity; or a trustee of mutual fund trusts (MFT), a real estate investment trust (REIT), or a SIFT trust.
Any non-citizen, non-permanent resident of Canada, any private corporation (including a Canadian private corporation); partnership (including a Canadian partnership); a trustee of family or personal trust (including a personal Canadian trust); a bare trustee (including, for example, parents holding the title of child’s property) that owns a residential property in Canada will not meet the definition of an excluded owner and, therefore, will be subject to the filing requirements of UHT.
The 2023 Fall Economic Statement proposes to add the following as “excluded owners” for 2023 and subsequent calendar years, and thus eliminate the UHT filing requirement for:
- An owner that is a specified Canadian corporation of which less than 10% its votes or value is owned by foreign individuals or corporations;
- A partner of a specified Canadian partnership with exclusively Canadian partners; and
- A trustee of a specified Canadian trust with exclusively Canadian beneficiaries.
Tax Payable
The UHT amounts equal to 1% of the taxable value or the fair market value (FMV) of the property, multiplied by the owner’s ownership percentage. The UHT is payable by April 30 of the following year.
There are three key components in the UHT formula:
- Taxable value generally means the greater of the assessed value of the residential property for property tax purposes or the residential property’s most recent sale price on or before December 31 of the relevant calendar year.
- The owner may choose to file an election in a prescribed form to use the FMV2 of the property as at any time between January 1 of the relevant year and April 30 of the following year.
- The election should be filed by April 30 of the following year.
- Ownership percentage generally means the percentage of ownership registered on the relevant land registration system or, in any other case, an equal share of ownership.
Exceptions
In addition to the “excluded owner”, the UHT includes other exceptions including but not limited to:
- An owner that is a specified Canadian corporation that is a Canadian corporation of which 10% or more of the votes or value of its shares is not owned by foreign individuals or corporations;
- The residential property is the primary place of residence of the owner, the owner’s spouse/common-law partner, or a child of the owner or the owner’s spouse/common-law partner if the child occupies the residential property for the purposes of certain authorized study;
- The residential property meets the qualifying occupancy period test for at least 180 days of the relevant calendar year;
- The residential property is uninhabitable for a period of at least 60 consecutive days in the relevant calendar year as a result of a disaster or hazardous conditions;
- The residential property is uninhabitable for a period of 120 consecutive days as a result of renovation and the construction is carried out without unreasonable delay;
- Note that this exemption can only be claimed once every 10 years.
- The owner acquired the residential property in the calendar year and was not an owner of the residential property in the prior nine calendar years (i.e., a new purchase);
- The owner died during the relevant calendar year or in the preceding calendar year;
- The construction of the residential property is not substantially (generally 90% or more) completed before April of the relevant calendar year;
- The construction of the residential property is substantially completed in January, February or March of the relevant calendar year and the property is offered for sale to the public during the calendar year and the residential property had never been occupied by an individual as a place of residence or lodging during the calendar year (i.e., newly built properties).
The 2023 Fall Economic Statement proposes to make the following changes:
- Unitized (condominiumized) apartment buildings are excluded from the definition of “residential property”, and thus exempt from UHT, effective for 2022 and subsequent calendar years; and
- An individual or a spousal unit can claim the UHT “vacation property” exemption for only one residential property for a calendar year, effective for 2024 and subsequent calendar years.
The UHT return is required to be filed by an owner who is not an excluded owner, even where an exemption from the tax applies.
Qualifying Occupancy Period
A qualifying occupancy period in respect to a residential property in relation to an owner of the residential property means a period of at least one month in a calendar year during which one of
the following individuals has continuous occupancy of a dwelling unit that is part of the residential property:
- An individual who deals at arm’s length with the owner and with any spouse/common-law partner of the owner and who is given continuous occupancy of the dwelling unit under an agreement evidenced in writing (i.e., long-term tenants).
- An individual who does not deal at arm’s length with the owner or with any spouse/common-law partner of the owner and who is given continuous occupancy of the dwelling unit under an agreement evidenced in writing and pays for the fair rent3 of the residential property for the period.
- An individual who is the owner or the owner’s spouse/common-law partner, who is in Canada for the purpose of pursuing authorized work under a Canadian work permit and who occupies the dwelling unit in relation to that purpose.
- An individual who is a spouse, common-law partner, parent, or child of the owner and who is a citizen or permanent resident.
Annual Filing Requirements and Penalty
A person who is an owner (other than an excluded owner) of one or more residential properties on December 31 of a calendar year is required to file a return for each residential property for the relevant calendar year by April 30 of the following year. Electronic filing of the return may be required by the Minister.
An owner who fails to file the annual UHT return by April 30 of the following year will be subject to a penalty equal to the greater of:
- $5,000 for individual owners or $10,000 for owners other than an individual, and
- 5% of the UHT plus 3% of the UHT multiplied by the number of complete months that the UHT return is late.
The 2023 Fall Economic Statement proposes to reduce the minimum penalties to $1,000 for individual owners and $2,000 for owners other than an individual, effective for 2022 and subsequent calendar years. Penalties and interest are proposed to be waived on 2022 UHT returns filed by April 30, 2024.
When the UHT return is not filed by December 31 following the reporting year, the late-filing penalty could be calculated based on the UHT without any exemption being claimed.
The UHT will be parallel with other existing vacant home taxes. To understand the hidden taxes associated with owning a property in British Columbia, please visit our previous blog post. To learn more about the tax implications surrounding real estate and construction, reach out to one of our experts today.
1 An owner of a residential property is generally identified as the land title holder under the relevant land registration system and includes a life tenant and a life lease holder.
2 As determined in a manner satisfactory to the Minister of National Revenue.
3 Fair rent in respect of a residential property means the amount determined in prescribed manner or, in the absence of any such prescription, 5% of the taxable value in respect of the residential property for the relevant calendar year.
