Do you own residential property in Canada?

​Let’s start with the basics. The new federal Underused Housing Tax (UHT) came into effect on January 1, 2022. With a few exceptions, the UHT does not apply to the majority of Canadian homeowners. In general, it only affects residential property owners who are not permanent Canadian residents or citizens.

It’s one part of the federal government’s longer-term housing strategy to address the declining supply and access to affordable housing. And because much of Canada’s underused housing is owned by non-residents, these new rules are intended to motivate foreign owners to make additional housing available to others. As a result, they are now required to file a UHT return for each residential property that they own in Canada by April 30 of each year.

If the return shows that these properties are either vacant or not used fully throughout the year, they may be considered to be “vacant or underused housing,” in which case, owners may also be required to pay a one-percent tax on the value of these properties in the previous calendar year.

While most Canadian citizens or permanent residents will likely be exempt from the UHT rules, it’s important to find out what requirements, if any, may apply to you.

How do you know if the UHT applies to you—or to your company?
To find out if the new UHT rules apply to you, the CRA’s definition of “affected owners” is a good starting point. It’s a very big net, and many different types of owners are required to file an annual return.

There’s a detailed list of the affected owners on the CRA webpage, but here’s a short sample of the wide range of individual and corporate ownership types that are included:

• Individual property owners who are not Canadian citizens or permanent residents, including foreign owners of condominium units.
• Individual property owners who are Canadian citizens or permanent residents and own residential property as a trustee of a trust.
• Any Canadian citizen, permanent resident or non-resident who owns a residential property as a member of a partnership.
• A residential property that is owned by a corporation incorporated outside Canada.

If these rules apply to you—time is of the essence
If you’re considered to be a foreign property owner, you must file an annual return for each of the properties you owned in the previous calendar year—even if no taxes are owed. Not filing is not an option. And there are substantial penalties if you neglect to file—at least $5,000 for each property that you own as an individual, and a minimum of $10,00 for each property owned by a company incorporated outside of Canada.

The bad news is the first filing deadline is fast approaching—on April 30 of this year. The good news is, while the deadline for filing the return is still April 30, the CRA has recognized that foreign property owners may need more time to comply in this first filing year. And so, for this year only, the penalties for filing a late return or the taxes owing are being waived, as long as the return is filed and the tax is paid by October 31, 2023.

Are there any UHT tax exemptions?
While you’re required to file an annual UHT return, there are some circumstances where you may qualify for tax exemptions. These include, for example, if your property is:

• In poor condition and uninhabitable
• Under construction
• The primary place of residence for you, your spouse (or common-law partner) or a child who is attending school
• In a remote location that isn’t suitable to live in year-round.
  

It will be worthwhile to investigate the CRA webpage to see how the rules may apply to you and whether you qualify for any potential tax exemptions.

It’s also important to keep in mind that cities such as Toronto, Ottawa and Vancouver have their own vacant and underused housing taxes, and each of those requires a separate filing in addition to the federal UHT. Some local taxes also may apply in situations where the federal UHT does not.

Given this broad and potentially complex residential property taxation landscape, I encourage you to seek the counsel of a tax professional to make sure you have a complete picture of all the potential tax obligations related to your property—and that you don’t unknowingly miss the first UHT filing deadline this year.