What Canada’s Underused Housing Tax Act Means for Taxpayers

Canada’s Underused Housing Tax Act (UHT) came into effect on January 1, 2022, and it imposes a tax on owners of properties (mostly non-Canadian residents) for property that is “underutilized.”

Below is a brief summary of the UHT; however, you should always consult a tax expert regarding your tax obligations to ensure that you are not missing valuable deductions and credits when filing your return.

What is the Underused Housing Tax?

The UHT is a 1% tax levied on specific residential properties that are deemed to be “underused” and are owned (at least in part) by specified individuals and entities as of January 1, 2022.

The tax usually only affects non-resident, non-Canadian owners, although in some cases, it can also be applicable to Canadian property owners.

Who is Required to Pay the Underused Housing Tax?

The UHT applies to taxpayers known as “affected owners.” Affected owners are defined as any taxpayer who owns a prescribed property on December 31 of a calendar year and is:

• Not a Canadian citizen or permanent resident.
• A Canadian citizen or permanent resident who, as a trustee of a trust, possesses a qualifying residential property (excluding personal representatives of deceased individuals).
• Persons, including Canadian citizens and permanent residents, who own a home property as a partner in a partnership.
• Corporations established outside of Canada.
• Canadian corporations whose shares are not listed on a Canadian stock exchange and are therefore not designated for Canadian income tax reasons.
• Canadian corporations without share capital.

Defining A “Prescribed Property”

Property that qualifies as a prescribed property includes:

• A detached home, a duplex, or a triplex with no more than three dwelling units.
• A section of a building that is a semi-detached house, a rowhouse unit, or a residential condominium.
• Other prescribed properties, such as additional living spaces utilized as a residence.

Exemptions from the Underused Housing Tax

There are several exemptions to the UHT, which include exemptions based on:

• The type of owner.
• Availability of the residential property.
• The location and use of the residential property.
• The occupant of the residential property.

Find out more about who qualifies for an exemption from the UHT on this CRA webpage.

Calculating Your Tax Obligation Under the UHT

If you are required to pay the Underused Housing tax for a calendar year, the tax rate is 1%. So to calculate your payable UHT, multiply the value of the prescribed property by 1% and multiply the amount by your percentage ownership of the property.

However, you must ensure that you are using an acceptable amount for the value of the property. The CRA accepts two methods for assessing the value of a prescribed property:

• Using its taxable value, or
• Using its fair market value.

If you choose the latter, you are required to file an election with the CRA and obtain an appraisal of the property by an accredited, professional real estate appraiser operating at arm’s length from the owner. That appraisal can only be used if it was specifically done for the purpose of calculating your UHT obligation.

The Due Date for Filing a Return

Affected owners must file an Underused Housing Tax return or an election for a calendar year and pay any UHT owing by April 30 of the following calendar year.

Affected owners who are individuals are subject to a minimum penalty of $5,000, and corporate affected owners face a minimum penalty of $10,000 for not filing their UHT returns on time.