Canadian citizens and residents who own residential properties should familiarize themselves with the Underused Housing Tax’s (UHT) various provisions to understand how they may be impacted.
What Is the Underused Housing Tax (UHT)?
The UHT is described as a one-percent tax on the value of non-resident, non-Canadian-owned residential real estate that is considered to be vacant or underused.
While the tax is generally aimed at non-residents of Canada, many may not know that there are situations where the rules could apply to Canadian citizens, Canadian residents, and corporations. They generally won’t have to pay the tax, but they do have to file a return and claim an exemption.
Where a return is required to be filed or a payment is due, the due date is April 30.
Who has to file a return for UHT?
All registered owners, unless they are an excluded owner, are required to file a return (the UHT-2900) along with a complete declaration of current use for each Canadian residential property they own.
Who is a Registered Owner?
You would be considered an owner for the the purposes of the UHT if any of the following apply:
- You are identified as an owner of the property in the land registration system where the property is located
- You are considered an owner of the property based on such a land registration system
- You are a life tenant under a life estate in the property
- You are a life leaseholder of the property
- You are a lessee with continuous possession of the land on which the property is situated under a long-term lease
You are not considered an owner of a residential property if you give continuous possession of the land on which the property is situated to either of the following:
- A life leaseholder of the property
- A lessee under a long-term lease
Who is an Affected Owner to File UHT?
If you are an owner of a residential property in Canada on December 31 of a calendar year and you do not meet the criteria of an excluded owner of the residential property on that date, you are required to file an annual return.
If you are an individual and meet any of the following criteria, you may be classified as an affected owner and required to file a UHT return:
- Individuals who are not citizens or permanent residents of Canada and who are owners of residential property in Canada in any capacity.
- Individuals who are citizens or permanent residents of Canada and owners of residential property in Canada in either of the following capacities:
- As a trustee of a trust (other than as a personal representative of a deceased individual and other than as a trustee of a mutual fund trust, real estate investment trust, or Specified investment flow-through (SIFT) trust for Canadian income tax purposes).
- A partner of a partnership
If a non-individual owner meets any of the following criteria, it may be classified as an affected owner and required to file an annual return:
- Corporations that are incorporated otherwise than under the laws of Canada or a province and are owners of residential property in Canada in any capacity.*
- Corporations that are incorporated under the laws of Canada or a province whose shares are not listed on a Canadian stock exchange are designated for Canadian income tax purposes and are owners of residential property in Canada in any capacity.
- Corporations that are incorporated under the laws of Canada or a province without share capital and are owners of residential property in Canada in any capacity.
*Any capacity means that a person is an owner of residential property in Canada in any of the following capacities: their own right; as a trustee of a trust (including as a personal representative of a deceased individual, but excluding as a trustee of a trust that is a mutual fund trust, real estate investment trust or SIFT trust for Canadian income tax purposes); or as a partner of a partnership.
Residential property owners can be categorized into three groups:
- owners with no UHT reporting or tax obligation.
- owners are required to file a UHT return and pay tax.
- and owners are required to file the return but with no tax payable due to an exemption.
The rules require residential property owners (with some exceptions) to file an annual UHT return (Form UHT-2900), even if only to claim an exemption from the tax. As a result, many Canadian corporations, partnerships, and trusts — including those with no foreign ownership or foreign beneficiaries — that hold residential property are required to file a return for each property annually even where no tax is payable. Significant penalties apply if the UHT return is not filed on time.
Which Owners are Excluded From the UHT?
An excluded owner is not subject to the UHT and is not required to file the annual UHT return.
- You are an excluded owner of a residential property if you are any of the following:
- An individual who is a citizen or permanent resident of Canada, unless you are an owner of the residential property as either of the following:
- A trustee of a trust (except if you are the personal representative of a deceased individual, in which case you are an excluded owner of the residential property)
- A partner of a partnership
- An owner of the residential property as a trustee of any of the following trusts:
- Mutual fund trust for Canadian income tax purposes
- Real estate investment trust for Canadian income tax purposes
- SIFT trust for Canadian income tax purposes
- A publicly traded Canadian corporation
- A registered charity
- A cooperative housing corporation
- Certain municipal organizations, public institutions, and government bodies
- An Indigenous governing body or corporation wholly owned by such a body
Which Residential Properties Will be Subject to UHT?
Residential property is defined as property that is either of the following:
- A detached house or similar building containing no more than three dwelling units, along with any appurtenances and the related land.
- A semi-detached house, rowhouse unit, residential condominium unit, or other similar premises, along with any common areas, appurtenances, and the related land.
Definitions:
- Dwelling Unit: a residential unit that is suitable to be used as a residence containing a private kitchen facility, private bath, and private living area.
- Related Land: land that is subjacent or immediately contiguous to a residential building and considered reasonably necessary for the building’s residents’ use and enjoyment. Generally, up to a half hectare of land is included as residential property.
Unless an exemption is available, the UHT applies to residential properties located in Canada. Residential property includes:
- detached houses (containing up to three dwelling units),
- semi-detached houses,
- rowhouse units /townhouses
- Duplexes/triplexes
- Laneway/coach houses
- Cottages/cabins/chalets (not for commercial use)
- Residential condominium units
- residential condominium units, or
- any other similar premises intended to be owned as a separate unit or parcel.
What are the Available Exemptions for Residential Properties?
For affected owners, certain characteristics or use of the property may exempt a residential property from UHT for a given calendar year. An annual return must be filed to claim the exemption.
- Primary place of residence. The residential property (or a dwelling unit within) is the primary place of residence for the owner, the owner’s spouse or common-law partner, or the owner’s child. Special rules apply to owners with multiple properties.
- Qualifying occupancy. The property was occupied for at least 180 days in the year, made up of one or more periods that are at least one month by:
- A third party under a written rental agreement
- A related person paying fair rent to the owner
- The owner’s spouse or common-law partner in Canada under a work permit
- The owner’s spouse, common-law partner, parent, or child who is a Canadian citizen or permanent resident.
- Limited seasonal access. The property was not suitable for year-round use as a place of residence or was inaccessible during part of the year.
- Disaster or hazardous condition. The property was uninhabitable for at least 60 consecutive days in a calendar year due to disaster or hazardous conditions (limits apply to how many times an exemption can be claimed for the same disaster/condition).
- Renovation or construction. The property was uninhabitable for at least 120 consecutive days in a calendar year due to renovation or where construction of the property was not substantially completed before April of the calendar year.
- Construction of property for sale. The property was substantially completed after March of the year, was offered for sale to the public, and was not previously occupied.
- Year of acquisition. The property was first acquired by the owner during the year (by sale or transfer).
- Upon the death of the owner. This exemption applies to the year in which the owner died as well as the following calendar year. It extends to the personal representative of a deceased individual as well as to surviving owners of jointly owned property of which the deceased owned at least 25 percent.
- Specified Canadian corporation. The property was owned by a Canadian corporation with less than ten percent foreign ownership.
- Partner of specified Canadian partnership. The property was owned by partners of a partnership where all members were either excluded owners or specified Canadian corporations
- Trustee of specified Canadian trust. The property was owned by a trustee of a trust where all beneficiaries with an interest in the property were either excluded owners or specified Canadian corporations.
- Prescribed area. The property was located in a prescribed area based on census data (determined using this CRA tool) and the owner, spouse, or common-law partner resided in the property for at least 28 days in the calendar year (not required to be consecutive).
What are Non-Residential Properties for UHT Filing
- Quadruplexes (buildings that have four dwelling units)
- High-rise apartment buildings
- Buildings that are primarily (more than 50%) for retail or office use and that contain an apartment
- Commercial condominium units
- Boarding houses and lodging houses
- Commercial cottages, cabins, and chalets (those used to provide lodging to several unrelated business or leisure travelers at once in separate cottages, cabins, or chalets)
- Hotels, motels, inns, and bed and breakfasts
- Floating homes
- Mobile homes
- Park model trailers
- Travel trailers, motor homes, and camping trailers
How is the UHT Calculated?
The UHT is determined using the following formula [1% of property value] X [person’s ownership %]. The value of a residential property can be determined using one of two methods:
1. Taxable Value
The greater of:
- The assessed tax value for the year under the related property tax assessment
- The most recent sale price on or before December 31 of the calendar year
2. Fair Market Value
Fair market value can only be used if the owner files an election to use this method for the property (the election is included on Form UHT-2900). The owner must obtain an appraisal of the property by an accredited, arm’s length real estate appraiser.
How to File the UHT and Any Elections
Affected owners must submit a 6-page form for each of their residential properties, even if they don't owe the tax. You must have a Social Insurance Number (SIN), Individual Tax Number (ITN), or a Canadian business number (BN) with an Underused Housing Tax (RU) program account identifier code before you submit. The UHT-2900 return can be filed by:
What are the UHT Filing Requirements
Below is a summary of certain information that must be included on the UHT-2900 form if you are an affected owner.
- Property address
- Property ID in land registry (It is recommended to provide a copy of the property assessment notice as this will cover several items on this list)
- Type of residential property (e.g. detached house, condo, townhouse, etc.)
- Year Acquired
- Ownership type (e.g. sole, joint tenancy, tenants in common)
- Names of other owners on title and percentage ownership
- The most recent assessed value
- Most recent sale price
What Happens if an Affected Owner Does Not File the Annual Return?
Failure to file each annual UHT return can result in significant penalties:
- $5,000 for individuals
- $10,000 for owners that are not individuals
Additional penalties and interest apply on outstanding taxes that are not paid by April 30 following the reporting year.
In addition to penalties and interest, failure to file the annual return can result in certain exemptions no longer being available to the owner for that year, resulting in taxes payable. Other penalties may be assessed for failure to provide required information, false statements or omissions, or failure to file under gross negligence.
Still, in Doubt, Ask for Advice From a Professional Accountant
If you owned a residential property (especially if you owned that property in a corporation, partnership, or trust) on December 31, we encourage you to speak to an expert accountant to find out if you need to file a return and whether you can take advantage of one of the exemptions available.
If you need help completing and filing UHT, meet with a tax professional at Filing Taxes. We take the time to listen and strategically analyze your complete financial picture to deliver tax planning that fits your life today and tomorrow. Our team will work with you to help you understand the solutions available to you and chart the best path forward. Don't let the practice of DIY Accounting become the culprit behind draining your business.
To learn more feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step toward proper management of your finances.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.