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Canada’s Underused Housing Tax Act

On June 9, 2022, the new Underused Housing Tax Act (The “UHTA”) received royal assent under Bill C-8 and is retroactive to January 1, 2022. The UHTA imposes a new tax for non-resident owners of Canadian residential housing of 1% of the property’s value. The purpose of the UHTA is to reduce real estate speculation.

Action required: If you are a non-resident owner of a vacant Canadian property, you may be subject to this tax which is due on October 31, 2023. For further details, please consult the article below or ask your tax advisor at Horizon CPA for guidance.

Which properties are subject to the tax?

Residential property subject to the tax include detached houses, semi-detached houses, row houses, condominiums, and other similar buildings that are held vacant during the year by a non-resident owner.

There are many exemptions to this tax. If you fall under any of the categories below, you are exempt from paying the UHTA tax:

  1. The property was occupied for a minimum of 180 days during the year in increments of one month or longer. This means that periods of occupancy that are less than a month may not count towards this total
  2. The owner or owner’s spouse uses the property as their primary place of residence
  3. The owner’s child or child’s spouse occupies the residence to study at a designated learning institution
  4. The owner owns the property solely in their capacity as:
    1. Partner of a specified Canadian partnership
    2. Trustee of a specified Canadian trust
  5. The property is owned by a Specified Canadian corporation. A Specified Canadian Corporation is:
    1. Incorporated under federal/provincial law
    2. At least 90% owned by Canadian individuals/corporations
    3. At least 90% of directors are Canadian
  6. An owner or co-owner passed away during the year or during the previous calendar year. This also applies to the representative of a deceased individual who owned the property.
  7. The owner acquired the property during the calendar year (and did not own the property for the previous 9 calendar years)
  8. The property could not be occupied for one of the following reasons:
    1. It is not suitable or seasonally inaccessible for year-round use
    2. It was uninhabitable for 60 consecutive days due to natural disaster
    3. It was uninhabitable for 120 consecutive days due to renovations
    4. It was under construction

Additionally, it has been proposed (but not yet approved) that vacation and recreational properties be exempt from this tax. A property is considered a vacation or recreational property if:

  1. It is located outside of metropolitan and densely populated areas
  2. It was personally used by the owner for at least 28 days during the year

Who is subject to the tax?

If you fall into the following categories, you are considered an excluded owner and the UHTA tax does not apply to you:

  1. Canadian citizens and permanent residents
  2. Individuals who own residential property as trustees of a mutual fund trust, a REIT, or a specified investment flow-through trust

If you do not fall into one of these categories and own a Canadian residential property subject to the tax on December 31 of a calendar year, you must file and pay the UHTA tax.

It should also be noted that owning a residential property through a trust or a Canadian private corporation does not exclude you from this tax.

You are considered to own the property if you are the legal title holder of the property. If there are multiple owners, the tax will be pro-rated for each owner.

How is the tax calculated?

The tax is assessed annually and is calculated at 1% of the taxable value of the property.

The taxable value is determined by one of two methods:

  1. The taxable value is the greater of:
    1. The most recent sale price before year-end
    2. The assessed value of the property for property tax purposes
  2. If an election is filed, the taxable value is the fair market value of the property article doesn’t say how this is determined

How do I file this tax?

The UHTA return must be filed with the Minister of National Revenue by April 30th of the following year.

If the return is not filed on time, the owner will be subject to penalties which are calculated as the greater of:

  • $5,000 for an individual, $10,000 for a non-individual
  • Total of 5% of the tax payable and an additional 3%* of the tax payable for each calendar month the return is late

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