written on behalf of Feigenbaum Law
In 2021, the Canadian government outlined a new tax, the Underused Housing Tax (UHT), as part of its annual budget. The UHT requires certain non-Canadian and Canadian residential property owners to report their ownership to the federal government. In most situations, it also requires the owner to pay a tax of 1% on the property’s value.
As the tax came into effect on January 1, 2022, with the enactment of the Underused Housing Tax Act, this tax season is the first in which affected owners will be required to pay the Underused Housing Tax.
What is the Underused Housing Tax (UHT)?
The Underused Housing Tax (UHT) is a 1% tax on the value of residential properties owned by non-Canadian and Canadian owners. An owner who falls under the Underused Housing Tax Act must file an annual UHT Return, reporting the value of all the residential properties they own. A UHT Return is required even if the owner is exempt from actually paying the 1% tax.
What information must be included in a UHT Return?
A UHT Return (CRA form UHT-2900 E) requires the property owner to include certain prescribed information, including their contact information, citizenship, information about the type and location of residential property, and the ownership of the property (i.e. co-ownership, ownership by trusts or partnerships, etc.)
When is the UHT filing deadline?
UHT Returns follow the same filing timeline as regular income tax returns and must be filed on or before April 30 of the following year.
Who is exempt from filing a UHT Return?
An owner of a residential property is exempt from filing a UHT Return if, on December 31 of the tax year, they were:
- A federal or provincial government body or agent of a government body;
- A citizen or permanent resident of Canada, unless their ownership arises from their role as a trustee of a trust or a partner of a partnership;
- A corporation incorporated under federal or provincial law that has shares listed on a stock exchange designated under section 262 of the Income Tax Act;
- A person who owns residential property in their capacity of a trustee of a mutual fund trust, a real estate investment trust, or a specified investment flow-through trust;
- A registered charity;
- A cooperative housing corporation, hospital authority, municipality, para-municipal corporation, public college, school authority, or university as defined under the Excise Tax Act;
- An Indigenous governing body (or a corporation owned by an Indigenous governing body) as defined by the Department of Indigenous Services Act; or
- A person who has been exempted under the Underused Housing Tax Act’s regulations.
Are all owners required to file a UHT Return liable to pay the 1% tax?
No. The Underused Housing Tax Act includes some exempted circumstances where an owner otherwise required to file a UHT is exempt from paying the 1% Underused Housing Tax. Some examples include (but are not limited to):
- The owner owns the residential property solely in their capacity as the partner of a specified Canadian partnership or trustee of a specified Canadian trust;
- The owner is a specified Canadian corporation;
- The residential property is not suitable for use as a residence year-round, or the property is seasonally inaccessible;
- The person who owns the property became owner in the calendar year (and never previously owned the property during the nine previous years);
- The owner died during the tax year (or the previous calendar year) and owned at least 25% of the property at the time they died;
- The property’s construction was substantially completed in the first quarter of the year and was put up for sale during the year, but was never occupied during the year; or
- The residential property is located in a prescribed area, or the person is a prescribed person under the Underused Housing Tax Act.
As the exemptions to the UHT are numerous and can be challenging to navigate, it is critical that residential property owners consult with a qualified tax professional to ensure they do not miss any opportunity to reduce their UHT burden.
What is the penalty for failing to file a UHT Return?
An owner who fails to file their UHT Return is liable for a minimum penalty of $5,000 if they are an individual or $10,000 otherwise. They could also be charged a maximum penalty that is equal to 5% of the UHT payable for the calendar year in question plus 3% of the UHT payable for each month that the Return is late.
Contact Feigenbaum Consulting in Toronto for Comprehensive Advice on Underused Housing Tax (UHT)
Feigenbaum Consulting has extensive experience representing clients in complex tax planning and compliance matters. The firm creates customized tax strategies that streamline compliance requirements and take advantage of all opportunities to reduce their tax burdens. As a lawyer and accountant able to practice in Canada and the United States, Mark Feigenbaum and his team offer unparalleled guidance to Canadian and non-Canadian property owners, including their obligations under the new Underused Housing Tax (UHT).
Conveniently located in Vaughan, just a few minutes north of Toronto, Feigenbaum Consulting offers a full range of services to individuals, professionals, and corporations. To schedule a confidential consultation, contact the firm online or at 905-695-1269 (or toll-free at 877-275-4792).