Compliance

Underused Housing Tax - UHT Guide in Plain English

Paul Sharpe, CPA, CA
/
March 23, 2023

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This article will explain Canada’s Underused Housing Tax (UHT) in plain English. It will help you understand who has to file a UHT return and who has to pay the Underused Housing Tax.

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Underused Housing Tax - Complete Guide

This article will explain Canada’s Underused Housing Tax (UHT) in plain English. 

It will help you understand who is subject to UHT rules, who has to file a UHT return and who has to pay the Underused Housing Tax.

It also explains how much Underused Housing Tax is and when it is due.

🎥 If you'd rather see Joe explain UHT in a video, hit the play button below! 👇

What Is the Underused Housing Tax (UHT)?

The Underused Housing Tax is a Federally mandated annual 1% tax on the ownership of vacant or underused housing in Canada.

The UHT took effect on January 1, 2022. 

It usually applies to non-resident, non-Canadian owners. However, in some circumstances it also applies to Canadian owners.

The UHT rules include an annual reporting requirement and a tax liability that is calculated at 1% of the residential property’s value. More on this below.

What the Underused Housing Tax is NOT

It’s nearly as important to understand what UHT is not.  

What I mean is that there are other similar Provincial and Municipal programs that can confuse things a bit.  

To help clarify, 

UHT is NOT ❌

If you live in one of these areas, you may need to file these returns separately.

UHT is also not ❌

  • A Personal Tax Return - The UHT return is not part of your personal tax return
  • A Corporate Tax Return - The UHT return is not part of a corporate tax return.
  • A Partnership Return - The UHT return is not part of your partnership return.

Alright, now we know what UHT is not.  

Moving on!

UHT Terminology

We’ll be talking about UHT in plain English in this article.

However, if you look up UHT on the Government of Canada website, you may have to do some mental gymnastics to understand what it’s talking about.

So here are a few terms that will help when reading about UHT.

  • Excluded Owner - Someone who does not have to file or pay UHT. If you’re an excluded owner, don’t worry about UHT.
  • Affected Owner - Someone who definitely has to file a UHT return, but may or may not have to pay any underused housing tax.
  • Exemption - Specific circumstances that exempt “affected owners” from having to pay any underused housing tax.
  • Carved out - The UHT Act uses the term “carved out” to explain when specific people are removed from an exemption.  It’s like saying “people wearing blue shirts are exempt UNLESS the shirt has buttons. Blue shirt, button people are carved out from this exemption.”

Keep these in mind when reading about UHT to help maintain your sanity.

Who Must File a UHT Return and Who Must Pay the UHT?

Some people (affected owners) are required to file an Underused Housing Tax return. 

However, only a small percentage of UHT filers will actually owe any underused housing tax.

This section will break down who is subject to the UHT rules, meaning they must at least file a UHT return.  

It will also explain who is required to pay the Underused Housing Tax.

Here are the steps.

  1. Step 1 - Determine if you are subject to the UHT rules
  2. Step 2 - If you are subject to UHT rules, determine if you must file a UHT return
  3. Step 3 - If you do have to file a return, determine if you must pay any UHT
  4. Step 4 - If you do have to pay UHT, calculate how much UHT you owe
  5. Step 5 - Once you know how much to pay, file your return and make your payment

📢 But first, a disclaimer.

The subject of UHT can get quite complicated, so we recommend reaching out to a qualified tax professional if your specific situation is not clear. This information is for educational purposes only and shouldn’t be solely relied upon to determine UHT status.

Step 1 - Are you subject to the UHT rules?

The first step is determining if you even have to worry about filing a UHT return or paying any underused housing tax.

👉 Were you the legal owner of a residential property in Canada as of December 31st?  

Answer yes if you were the legal owner (the person or entity registered on title), jointly or otherwise, of a residential property in Canada on December 31st.

🛑 If not, you’re not subject to the UHT Act. Stop here 🛑

⏭️ If yes, go to step 2 to see if you need to file a UHT return👇.  

Step 2 - Are you required to file an annual UHT return?

“Excluded owners” are not required to file a UHT return.  

If you are an “excluded owner” you’re not required to file a UHT return or pay the tax.

Great, then we need to know what an “excluded owner” is.

Excluded Owners Are:

  • Canadian citizens or permanent residents - Canadian citizens or permanent residents are generally “excluded owners.” However, they’re not “excluded owners” if they hold interest in a property as a partner or as a trustee.

    Specific owners that are carved out of this exclusion are:
  1. If you own property as a partner of a partnership then you’re “carved out” from this exemption. If that’s you, then you would need to move on to step 3.
  2. If you own property as a trustee of a trust then you’re “carved out” from this exemption.  If that’s you, then you would need to move on to step 3. UNLESS you’re a personal representative of a deceased individual - then you are an excluded owner.

Other Excluded Owners Include:

  • Canadian corporations on a Canadian stock exchange - Corporations that are both incorporated federally or provincially in Canada AND are traded on a Canadian stock exchange ARE “excluded owners”. 
    (conversely, private Canadian corporations like Avalon Accounting Inc. are NOT excluded owners)
  • Registered charities - All registered charities are “excluded owners”
  • Cooperative housing corporations - All cooperative housing corporations are “excluded owners”
  • Municipalities, Indigenous governing bodies or corporations owned by such entities - Municipalities, indigenous governing bodies and corporations owned by such entities are “excluded owners.”
  • The Government of Canada and Provincial Governments - These are “excluded owners”
  • Publicly-traded trusts - Publicly-traded trusts are “excluded owners”
  • Other public service bodies - eg. universities, public colleges, school authorities, hospital authorities, etc. are “excluded owners”

👉 Are you an excluded owner as noted above?

🛑 If you are an excluded owner, you do not have to file a UHT return. Stop here 🛑

⏭️ If you’re not an excluded owner, then you are an “affected owner” and are required to file a UHT return.  Go to step 3 to find out if you have to pay anything👇.  

More Context on Common Excluded Owners

The most common “excluded owners'' are going to be Canadian citizen or permanent resident homeowners.  

As long as these people don’t own the home as a partner or trust, they’re typically “excluded owners” and don’t need to file a UHT return or pay any UHT.

Spouses who co-own a residential property are typically “excluded owners”.

Step 3 - Are you required to pay the Unused Housing Tax?

If you meet any one of the exemptions below, no tax will be payable when you file your return.

You would still need to file a return, but won’t actually owe any UHT.

There are four main categories of exemption so I’ve grouped them under headings and listed the specific exemptions within each category.

3A - Exemptions Based on Type of Owner of the Property

The following types of property owners are exempt from paying the UHT.  They may still need to file a UHT return, though.

  • Specified Canadian Corporations (definition) - where foreign owners do not control, directly or indirectly, 10% or more of the corporation (by share value or voting rights).
  • Specified Canadian Partnerships (definition) - where each member is, on December 31st, an “excluded owner” or a “Specified Canadian Corporation”.
  • Specified Canadian Trusts (definition) - where each beneficiary that has a beneficial interest in the property is, on December 31st, an “excluded owner” or a “Specified Canadian Corporation”.
  • New Owner - an owner who acquired the property in the year and was not an owner of that property at any time in the prior 9 years.
  • Deceased Owner - an owner who died in the year or prior year
  • Representative of Deceased Owner - a personal representative of a deceased individual. The exemption applies for the year of death and subsequent year.  (This exemption does not apply if that representative was also an owner of the property in either year.)
  • Co-owner of Deceased Owner - a co-owner of a property where another co-owner owned at least 25% of the property at their death. The exemption applies for the year of death and subsequent year.

3B - Exemptions Based on Availability of the Property

The following states of property availability provide an exemption from paying the UHT.  Owners may still need to file a UHT return, though.

  • Under Construction - properties that are under construction and not substantially completed before April of the year.
  • New Construction Held as Inventory - properties that were constructed and substantially completed between Jan 1 and Mar 31 AND the property is up for sale to the public during the year AND the property was never occupied by an individual as a place of residence during the year.
  • Not Suitable for Year-round Living - properties that are not suitable to be lived in year-round OR are seasonably inaccessible due to lack of year-round public road access.
  • Uninhabitable from Disaster or Hazardous Conditions - properties that are uninhabitable at least 60 continuous days in the year due to disaster or hazardous conditions. (This exemption is only available for a maximum of two years in respect to the same disaster).
  • Uninhabitable from Major Renovations - properties that are uninhabitable at least 120 consecutive days in the year due to ongoing major renovations. (This exemption is only available once every ten years).

3C - Exemptions Based on Occupancy of the Property

The following types of occupancy of the property provide an exemption from paying the UHT.  Owners may still need to file a UHT return, though.

  • Primary Place of Residence - properties that are the primary place of residence for the year of the individual, their spouse or common-law partner, or their child attending a designated learning institution.
  • Qualifying Occupancy - properties that satisfy one of the following “qualifying occupancy” scenarios.  In each scenario, the individual must occupy the property for at least one month for a total of at least 180 days in the year.  (For example, if the individual occupies the property in January, April, May, September, October and November, that would count as 183 days total and each period of occupancy was at least one month long.)

    Qualified Occupancy falls under the following four scenarios:
  1. Arm’s length individual - who occupies the property under a written agreement
  2. Non-arm’s length individual - who occupies the property under a written agreement and pays at least fair rent (5% of the value of the property)
  3. Owner or their spouse or common-law partner - who occupies the property while the individual is in Canada for work, and the occupancy relates to that purpose.
  4. Owner, spouse or common-law partner, parent or child - who occupies the property and is a Canadian citizen or permanent resident.

3D - Exemptions Based on Location and Use of the Property

The following location and use of the property provides an exemption from paying the UHT.  Owners may still need to file a UHT return, though.

  • Vacation Property - is a property located in an eligible area of Canada and used by the owner or their spouse or common-law partner for at least 28 days in the year.  Use the vacation property designation tool to determine eligible regions.

👉 Do you meet one of the exemptions listed above?

📩 If you meet one of the exemptions above, you do not have to pay UHT, but you still need to file a return. Skip step 4 and go to Step 5.

💰 If you do not meet one of the exemptions above, you will have to file a UHT return AND pay the UHT. Go to Step 4

Step 4 - Calculate the Unused Housing Tax

If you’ve gone through the steps and you do need to pay the UHT, here is how to calculate what you owe.

UHT is calculated as 1% of the greater of:

  • The properties assessed value for the year for property tax purposes

    AND

  • The most recent sale price, applied to the ownership percentage

An owner can also elect to use the property’s fair market value as determined at any time during the year and up to April 30 of the following year. 

CRA requires an appraisal with specific parameters for a property owner to use this election.

👉 Complete step 4 by calculating your UHT balance owing.

📩 Then go to Step 5 to file your UHT return and submit your payment.

Step 5 - File Your UHT Return (and Make Your Payment if Applicable)

Now that you’ve determined you must file a UHT return and potentially may need to make a payment, it’s time to file your return.

You’re required to file a UHT return for each property that does not meet one of the exemptions.

Your return, Form UHT-2900, must be filed by April 30.

If April 30th falls on a weekend or a public holiday that CRA recognizes, your return is due on the next business day.

For example, if you have to file a return for a residential property for the 2022 calendar year, your return is due by April 30, 2023. 

Since April 30, 2023, falls on a Sunday, your return is on time if the CRA receives it on Monday May 1, 2023.

How to File a UHT Return

Now that we know who must file a UHT return, let’s take a quick look at the sections that need to be filled out within the return.

You’ll be completing Form UHT-2900 and then mailing or faxing it to the applicable Tax Centre.

There is quite a bit of information you will need to include on the form.  

We recommend that our clients fill out their own forms so they’re not paying an accountant $150 to $250 per hour to request information and do some data entry.

Then if you have questions, it makes sense to consult your accountant to get help with the tricky parts.

Part 1 - Information About the Owner

Fill in information about the property owner in this section.  You will need your partnership or trust numbers if applicable.

UHT Return

Part 2 - Information About the Property

In Part 2 you’ll be including information about the property in question.

UHT Return

Part 3 - Multiple Residential Properties

Part 3 only applies to individuals who are neither Canadian citizens or permanent residents of Canada.  

It doesn’t apply to individual Canadian citizens, individual permanent residents or corporations.

Part 4 - Exemption for Primary Place of Residence

Part 4 applies to individual owners that are exempt from paying UHT under the Primary Place of Residence Exemption (see Step 3C above).

These owners will need to fill out Part 4 to claim the exemption.

UHT Return

Part 5 - Exemption for Qualifying Occupancy

Next up we have part 5 of the return which should be filled out by those qualifying for the exemption for qualifying occupancy. Again see Step 3C above for info on this exemption.

UHT Return

Part 6 - Other Exemptions

And then Part 6 should be filled out for any of the other exemptions listed in this part.

UHT Return

Part 7 - Fair Market Value Election

If you’re electing to use the FMV election for the residential property, you would fill out Part 7 to do so.

UHT Return

Part 8 - Calculation of Tax Payable

Use Part 8 to calculate your balance of UHT owing.

UHT Return

Part 9 - Calculation of Tax Payable

Then finally in Part 9 you will certify the UHT return and FMV election if applicable.

UHT Return

Where to Send Your UHT Return

Once you’ve completed the return, you can mail or fax it to the applicable Tax Centre.

See below for information on where to send your return.

UHT Return

OR

UHT Return

Frequently Asked UHT Questions

For quick reference, here are some frequently asked UHT questions and the applicable answers.

How Much Is the UHT?

UHT is calculated as 1% of the greater of:

  • The properties assessed value for the year for property tax purposes

    AND

  • The most recent sale price, applied to the ownership percentage

An owner can also elect to use the property’s fair market value as determined at any time during the year and up to April 30 of the following year. 

CRA requires an appraisal with specific parameters for a property owner to use this election.

When Is My UHT Return Due?

Your return, Form UHT-2900, must be filed by April 30.

If April 30th falls on a weekend or a public holiday that CRA recognizes, your return is due on the next business day.

For example, if you have to file a return for a residential property for the 2022 calendar year, your return is due by April 30, 2023. 

Since April 30, 2023, falls on a Sunday, your return is on time if the CRA receives it on Monday May 1, 2023.

When Is My UHT Payment Due?

UHT payments for a calendar year are due by April 30th of the following year.

If April 30th falls on a weekend or a public holiday that CRA recognizes, your UHT payment is due on the next business day.

What Are the UHT Failure to File Penalties?

See below for the basic information on UHT penalties.  More details can be found at the UHT source here.

Penalties are payable if you don’t file your UHT return for a residential property for a calendar year by April 30 of the following calendar year.

There is a minimum $5,000 penalty for individuals, while corporations are subject to a minimum penalty of $10,000.

Penalties are calculated at the greater of the two following amounts:

  • $5,000 for individuals and $10,000 for corporations

    AND

  • The amount that is the total of:
  • 5% of your UHT payable for the residential property for the calendar year, PLUS
  • 3% of your UHT payable for the residential property for the calendar year, multiplied by the number of complete calendar months that the return is past due

📢Note that this penalty applies even if your Underused Housing Tax balance owing is $0!

Penalties Update for 2022 UHT Filings

Updated March 27, 2023

The CRA has realized that they've caught a lot of people off-guard with the introduction of the UHT in 2022.

Because of this, they've added some relief relating to interest and penalties for the 2022 UHT filing period (details here).

In simple terms:

File your 2022 UHT return and pay any balance owing by October 31, 2023 or face penalties and interest.

In CRA's terms:

The Canada Revenue Agency (CRA) understands that there are unique challenges for affected owners in the first year of the Underused Housing Tax Act (UHTA) administration.

To provide more time for affected owners to take necessary actions to comply, the Minister of National Revenue is providing transitional relief to affected owners.

The application of penalties and interest under the UHTA for the 2022 calendar year will be waived for any late-filed underused housing tax (UHT) return and for any late-paid UHT payable, provided the return is filed or the UHT is paid by October 31, 2023.

This transitional relief means that although the deadline for filing the UHT return and paying the UHT payable is still April 30, 2023, no penalties or interest will be applied for UHT returns and payments that the CRA receives before November 1, 2023.

How to Pay Your UHT Balance Owing

If the amount of UHT owing is less than $50,000, you can attach a cheque or money order to your UHT return. 

You can also pay amounts of less than $50,000 electronically. 

For more information on how to make your payment, go to www.canada.ca/payments.

For amounts owing that are $50,000 or more, you must make your payment through an accepted financial institution.

Do I have to File a UHT Return for Each Property?

Yes, you’re required to file a UHT return for each property that does not meet one of the exemptions.

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Article by
Paul Sharpe, CPA, CA
.
Originally published
March 23, 2023
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