Underused Housing Tax

The Underused Housing Tax Act (the “UHTA”), which mandates a filing requirement and a potential 1% tax on the assessed value of vacant or underused housing in Canada, was enacted on June 9, 2022. The UHTA is meant to impose a penalty on non-Canadians holding vacant properties in Canada. While the UHTA policy intent is well-intentioned, it is overly broad in application and imposes onerous filing obligations on certain owners not intended to be subject to the UHTA. 

If you own a residential property in Canada, you may or may not have obligations and liabilities under the UHTA depending on whether you are an excluded or affected owner. Excluded owners include Canadian citizens or permanent residents who do not fall into the list of affected owners, cooperative housing corporations, registered charities, and corporations whose shares are listed on a Canadian stock exchange for Canadian income tax purposes. Affected owners, on the other hand, include individuals who are not Canadian citizens or permanent residents, individuals who are Canadian citizens or permanent residents who own a residential property as a trustee of a trust (other than as a personal representative of a deceased individual), and corporations that are incorporated outside Canada, among others. If you are an affected owner, you must file an Underused Housing Tax return and pay the Underused Housing Tax on December 31, unless your ownership qualifies for an exemption. The exemptions are based on the type of owner, the availability of the residential property, the location and use of the residential property, and the occupant of the residential property. Failure to file the return on time may result in significant penalties, with affected owners who are individuals subject to a minimum penalty of $5,000, and affected owners that are corporations subject to a minimum penalty of $10,000.

At the end of March, 2023, the Canada Revenue Agency announced that the while the deadline for affected owners to file an Underused Housing Tax return and pay any taxes owing would still be April 30, 2023, there will be transitional relief applicable for the 2022 calendar year: penalties and interest under the UHTA for the 2022 calendar year would be waived for any late-filed returns, provided the UHT returns are filed no later than October 31, 2023.