Underused Housing Tax (UHT) effective January 1, 2022

The Government of Canada last year proposed the Underused Housing Tax (UHT) of 1% to discourage foreign ownership of underused (including vacant) homes in Canada.  This tax act is set to become law later this year and become effective January 1, 2022 with reporting due date of April 30, 2023.  Currently, the draft legislation sets out the following details:

There are 2 requirements – a declaration filing requirement and a tax liability payment requirement for those individuals and entities that own a residential property in Canada. 

Full exemption from declaration filing & tax liability payment:

Canadian citizens and permanent residents of Canada are fully exempt and do not have to do anything.

Declaration filing requirement (whether or not there is a tax liability):

• Individuals who are not Canadian citizens or permanent residents and own a residential property in Canada are required to file.
• Canadian private corporations that own a residential property in Canada are required to file.
• Canadian partnerships and trusts that own a residential property in Canada are required to file.

Tax liability exemptions:

• If the residential property is the principal residence of the owner.
• If the individual owner’s non-resident spouse resides in the property for more than 180 days in the year.
• If the individual owner’s Canadian spouse, child or parent reside in the property for more than 180 days in the year.
• If the residential property is rented to an unrelated parties for more than 180 days in the year (at least a month for each unrelated party, if applicable).
• If the residential property is rented to related parties at fair market value rent for more than 180 days in the year (at least a month for each related party, if applicable).
• If the Canadian private corporation is more than 90% owned by Canadian citizens or permanent residents of Canada.
• If all the partners in the partnership are Canadian citizens or permanent residents of Canada.
• If all the beneficiaries of the trust are Canadian citizens or permanent residents of Canada.
• If the property is not suitable for year-round use.
• If the property is acquired in the year, tax exemption for that calendar year.
• If the owner died in the year, tax exemption for that year and the following year.

Tax Liability

Tax is calculated at 1% of the specified value of the property, which is the higher of the assessed value for property tax or the most recent sale price.  An alternative to that would to be get a fair market value appraisal of the property at any time between January 1 of the year to April 30 of the following year.

Declaration Filing & Tax Payment Due Dates

The due dates for both are April 30 of the following year.

Penalties for late filing

The penalty for not filing by the due date is the greater of:

 $5,000 for individuals, $10,000 for others

OR

5% of UHT + (3% of UHT x no. of months late in filing)

If declaration is not filed by December 31 of the following year, the tax liability exemption could be disallowed in calculating the UHT for the penalty above.

Impact on Section 116 Compliance Certificate

Beginning in 2023, an application for Section 116 Compliance Certificate by a non-resident will prompt a compliance review by CRA in terms of UHT.   The CRA will not issue a certificate of compliance to an applicant until it is satisfied that the applicant is in compliance with any applicable obligations under the UHT.  Therefore, for non-residents (who are not Canadian citizens), failure to file their UHT declarations can prevent them from obtaining the compliance certificate required when selling their Canadian property.

If you would like to learn more or to set up a consultation call Marlies Y Hendricks, CPA at 416-766-3941.

The above information is of a general nature only and should not be relied upon for specific situations.