The Underused Housing Tax (UHT) is a new tax in Canada, which took effect on January 1, 2022. It is an annual tax of 1% on the ownership of vacant or underused residential properties. The tax applies to non-resident, non-Canadian property owners and in some cases Canadian owners. Significant penalties exist if an affected owner fails to file a UHT return by the April 30th, 2024 deadline.
Required form: UHT-2900 Underused Housing Tax Return and Election Form – Canada.ca
Who is Required to File a UHT Return?
All owners of a residential property, except for those identified as an excluded owner, are required to file a UHT return.
To qualify as an excluded owner, you must be either a:
- Citizen or permanent resident of Canada
- Canadian corporation with shares traded on a registered Canadian stock exchange
- Trustee of a trust with units traded on a registered Canadian exchange
- Registered charity
- A condominium corporation, hospital authority, municipality, public college, school authority, university, or an indigenous governing body.
Private corporations (other than registered charities), estates, personal trusts, and partnerships do not qualify as excluded owners and must file a return to avoid the tax. If you are a client of SB Partners, please note the UHT is an additional filing requirement and is NOT part of your regular personal or corporate tax filing.
Note: A partnership could include two Canadian citizens owning a rental residential property for the pursuit of profit and thus may be required to file to avoid the tax.
What is a residential property?
The UHT applies to residential properties, which includes houses or buildings with no more than three dwelling units, and any portion of a building that is intended to be owned apart from any other unit in the building. Detached and semi-detached houses, duplexes, triplexes, and condominium units may all be subject to the UHT. Commercial apartment buildings are not subject to the UHT, as the units are not intended to be owned separately.
How do you qualify for an exemption?
Exemptions are available for certain types of owners and properties, including:
- specified Canadian corporations,
- specified Canadian partnerships,
- newly constructed properties,
- properties that are not suitable for year-round living, and
- primary residences.
- There are also exemptions based on the availability of the use of the property and the occupants of the property.
If an ownership qualifies for an exemption, they still must file a tax return for the calendar year; however, there will be no taxes payable.
How do I file a UHT return?
Each person classified as an “affected owner” must submit an annual return to the CRA for every residential property owned on December 31st of a calendar year. The deadline for submitting the return and paying any UHT owed is April 30th of the following calendar year. The initial annual filings and payments for applicable properties owned on December 31, 2022, are due by April 30, 2024. Please note this filing date takes in to account an extension.
If an affected owner possesses two or more residential properties in Canada on December 31, they must file separate UHT returns for each property. If ownership is shared, each affected owner must file separate UHT returns for the property and either claim an exemption or pay the tax based on their share of value.
To file your UHT return please complete either of the options below:
- Electronically through My Account, My Business Account, or Represent a Client.
- The return can be filed directly on the CRA’s website, requiring a digital access code from the CRA.
- The UHT return can also be filed in paper form. Depending on the owner’s location, the UHT return should be sent to the Winnipeg or Sudbury Tax Services Office.
What are the penalties for failure to file?
Individuals are subject to a minimum penalty of $5,000, while corporations are subject to a minimum penalty of $10,000. They must also pay the tax unless their ownership qualifies for an exemption for the calendar year. Even if an ownership qualifies for an exemption, they must still file a UHT return for the calendar year.
How to register to file a UHT return?
To file a UHT return, any corporation must first register for a UHT program account, or RU account, with the CRA. Filings will not be accepted without this account, which can be easily created online through the CRA website. Please note that non-resident businesses require a separate service for UHT account registration.
Individuals should use their SIN or ITN to file a UHT return, while non-residents must obtain an ITN if they do not already have one. Partnerships and trusts need not register for UHT, as their partners or trustees will handle the property-related returns.
The introduction of new vacancy taxes will greatly affect property owners in Canada, regardless of their location. It is crucial to file all necessary returns and declarations on time to avoid substantial penalties and potential taxation where exemptions would normally apply.
Additional Information:
If you are a client of SB Partners and have any concerns about the UHT, please do not hesitate to contact your Partner.
Watch our latest Accounting for our Community Podcast on Uncovering the Impact of the Underused Housing Tax (UHT): Exploring How Canada’s UHT Affects Privately Owned Businesses.
