Underused Housing Tax: The Impact on Some Residential Property Owners

Canada Revenue Agency extended the deadline for filing the 2022 Underused Housing Tax Return until April 30, 2024. This extension means that all penalties and interest will be waived so long as the return is filed by April 30, 2024. This also means that both the 2022 and 2023 Underused Housing Tax Returns need to be filed by the same deadline.

The Underused Housing Tax Act (UHTA) came into effect in June 2022 and may apply to residential properties owned on or after December 31, 2022. This affects many residential property owners who should be aware of the new annual responsibilities they may have under the Act.[1]

The Underused Housing Tax is an annual 1% tax on the ownership of vacant or underused housing in Canada. The Underused Housing Tax return must be filed and payment must be made by April 30 of the following calendar year. Failure to file will result in a minimum fine of $5,000 for individuals and a minimum fine of $10,000 for corporations.[2] There are some general exceptions to this tax and those who may qualify for annual exceptions.

Who Must File the Underused Housing Tax Return

“Excluded owners” are those who have no obligations or liabilities under the UHTA and do not have to file a return. An excluded owner includes:

• An individual who is a Canadian citizen or permanent resident – unless included in the list of affect 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 (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
• A cooperative housing corporation
• An Indigenous governing body or a corporation wholly owned by an Indigenous governing body.[3]

If you are not an excluded owner, you are an “affected owner” who has obligations under the UHTA and must file a return annually. An affected owner includes:

• 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 of 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[4]

If you are an affected owner, you must file a return for each residential property you own in Canada by April 30 of the following calendar year. You must also pay any tax by April 30 unless you qualify for an exemption for that same calendar year. Failure to file can result in fines.

Exemptions from Underused Housing Tax

Exemption in one calendar year does not mean you will be exempt in the next calendar year. If you are exempt from the tax, you still must file the return. The following is a list of possible exemptions from the tax for the calendar year:

• If you are a specified Canadian corporation, partner of a specified Canadian partnership or a trustee in a specified Canadian trust (a corporation with less than 10% foreign ownership).
• If you are a new owner in the calendar year
• If you are a personal representative of a deceased individual or you are an owner of residential property that was owned by the deceased individual.
• If the property was newly constructed, unsuitable for year-round living or seasonally inaccessible
• If the property was uninhabitable for at least 60 consecutive days because of disaster or hazardous conditions
• If the property was uninhabitable for at least 120 consecutive days because of renovations
• If the property is a vacation property located in an eligible area of Canada and used by you, your spouse or common-law partner for at least 128 days in the calendar year.
• If it is the primary residence for you or your spouse or common-law partner or for your child
• At least 180 days in the calendar year are included in one or more of the qualifying occupancy periods for your ownership of the residential property:
  • An third party with a written rental agreement
  • A related person with a written rental agreement who pays at least fair rent for the property
  • You, your spouse or common-law partner who has a Canadian work permit
  • You, your spouse of common-law partner, parent, or child who is a Canadian citizen or permanent resident[5]

If between you and your spouse or common-law partner own multiple residential properties, you may not qualify for exemptions of either primary place of residence or qualifying occupancy unless you file an election with CRA to designate only one property for the purpose of the exemption. [6]

Filing the Return

You must file the return, pay any amount owing, and any election to calculate the tax or to qualify for exemptions of primary place of residence or qualifying occupancy by April 30 of the following calendar year.

Affected owners are required to calculate the amount of tax owning by multiplying the value of the residential property by the 1% tax rate, then taking that amount and multiplying it by your ownership percentage of the property.[7]

To determine the value of the property, you can use the taxable value of the property. If you wish to use the fair market value of the property, you must file an election with CRA. There must be an appraisal of the property by an accredited, professional real estate appraiser operating as a third party from the owner and the purpose of the appraisal must be to assist the administration of the UHTA.[8]

To file the return, you must have a valid CRA tax identifier number. That number is either a social insurance number (SIN), individual tax number (ITN) or a Canadian business number (BN) with an Underused Housing Tax program account identifier code (RU). You cannot use a trust account number (TAN) to file the return. The following defines which tax identifier number should be used in each situation:

• If you are an individual who is a Canadian citizen or permanent resident, you must file using SIN
• If you are an individual who is not a Canadian citizen or permanent resident, and you already have a SIN, you must file using SIN. If you do not have SIN, you must use ITN.[9]
• If you are a corporation, you must use the BN with RU. If you already have a BN, you have to register your RU program account before you can file.[10]
• If you do not have a BN, you must apply for one and register your RU program account before you can file.[11]

If you are an affected owner who owns two or more residential properties in Canada, you must file separate Underused Housing Tax returns for each property. If you are an affected owner who shares ownership with others who are also affected owners, each of you must file separate returns for the property.

You are required to keep all records in relation to the residential property whether or not you are exempt from paying the tax, as exemptions may be withdrawn due to inadequate documentation.

For more information, please refer to the Government of Canada Underused Housing Tax website https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html or contact our firm and we can assist you.

[1] https://www.mnp.ca/en/insights/directory/underused-housing-tax-act

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

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

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

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

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

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

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

[9] https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1261.html

[10] https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/registering-your-business/register.html

[11] https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/registering-your-business/register.html