Underused Housing Tax (UHT) effective January 1, 2022

The Underused Housing Tax (UHT) took effect on January 1, 2022.  This tax of 1% of the home value was introduced to discourage foreign ownership of underused (including vacant) residential homes in Canada.  The first tax return covering the year 2022 was initially due on April 30, 2023.  However, CRA announced that there would be no penalties or interest if the first year return, and taxes, if applicable, were filed and paid by October 31, 2023.  Then on October 31, 2023, CRA made another announcement that the grace period was further extended to April 30, 2024 giving us another six months to comply.

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.  However, some might still be affected if they own a residential home through a Canadian private corporation, a partnership, or are a trustee of a trust that owns the property or as a bare trustee.

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.
• Individuals who are in a partnership that owns a residential property in Canada are required to file.
• Individuals who are trustees of a trust that owns a residential property in Canada are required to file.
• Individuals who are on the ownership titles but are not the beneficial owners of the property are considered to be acting as bare trustees and therefore, 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 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.

Filing & Tax Payment Due Dates

The due dates for both are April 30 of the following year.  For the first year 2022, CRA has announced that it will not assess penalties or interest if the return is filed and taxes (if applicable) are paid by April 30, 2024.

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 the return 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

An application for Section 116 Compliance Certificate by a non-resident will now 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.

The above information is of a general nature only and should not be relied upon for specific situations.  Call Marlies Y Hendricks, CPA at 416-766-3941 or submit email enquiry form below to set up a consultation.