Canada's Underused Housing Tax - What You Need to Know

Underused Housing Tax (UHT) was introduced by the Govt. of Canada in 2022 in an effort to reduce the amount of housing in Canada that remains vacant while owners ‘sit on the investment’ as real estate prices continue to rise. For BC owners, particularly for those living in Vancouver and Lower Mainland, a tax on underused or vacant homes is already a familiar concept with the well-established B.C. Speculation and Vacancy Tax and Vancouver’s Empty Homes Tax. However, the federal Underused Housing Tax (UHT) has some key differences that owners of residential property will want to pay close attention to.

The Underused Housing Tax is a new annual 1% property tax on the value of a residential property that is considered vacant or underused in Canada. The tax is aimed at non-residents of Canada, but there are situations where the rules could apply to Canadian citizens and residents.

The underused housing tax can apply to residential property, as defined in the UHT Act, which includes:

Detached houses
Duplexes
Triplexes
Semi-detached houses
Row houses
Residential condos
And other similar premises, with 3 or less dwelling units.

Who must file a return and pay the tax?

If you are an excluded owner of a residential property in Canada, you have no obligations or liabilities under the Underused Housing Tax Act.

An excluded owner includes, but is not limited to:

an individual who is a Canadian citizen or permanent resident – unless included in the list of affected owners below
any person – including an individual who is a Canadian citizen or permanent resident – that owns a residential property as a trustee of a mutual fund trust, real estate investment trust, or specified investment flow-through trust (SIFT) for Canadian income tax purposes
a Canadian corporation whose shares are listed on a Canadian stock exchange designated for Canadian income tax purposes
a registered charity for Canadian income tax purposes
a cooperative housing corporation for Canadian GST/HST purposes
an Indigenous governing body or a corporation wholly owned by an Indigenous governing body

If you are not an excluded owner we refer to you as an affected owner and you have obligations under the Underused Housing Tax Act for your residential property in Canada.

An affected owner includes, but is not limited to:

an individual who is not a Canadian citizen or permanent resident
an individual who is a Canadian citizen or permanent resident and who owns a residential property as a trustee of a trust (other than as a personal representative of a deceased individual)
any person – including an individual who is a Canadian citizen or permanent resident – that owns a residential property as a partner of a partnership
a corporation that is incorporated outside Canada
a Canadian corporation whose shares are not listed on a Canadian stock exchange designated for Canadian income tax purposes
a Canadian corporation without share capital

If you are an affected owner, you must file an Underused Housing Tax return for each residential property that you own in Canada on December 31. You must also pay the Underused Housing Tax, unless your ownership qualifies for an exemption for the calendar year. Even if your ownership qualifies for an exemption, you must still file an Underused Housing Tax return for the calendar year.

Are there any exemptions for the Underused Housing Tax?

There are several exemptions available to affected owners, but you will still need to file a UHT return even if you qualify for an exemption. Other exemptions include those based on the availability, location or use of the residential property. Our tax accountants can help identify ownership situations that are subject to the UHT rules, and ensure their clients understand potential any filing and/or tax implications.

Take Aways

We are here to help with all your tax needs. If you still have questions about the underused housing tax, our tax experts at DM Tax in Surrey, BC can assist you.

Source: https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html