Underused Housing Tax (UHT)

The Underused Housing Tax (“UHT”) is an annual 1% property tax on the value of a residential property that is considered vacant or underused in Canada. 

The underused housing tax can apply to residential property, as defined in the UHT Act, which includes:

• Detached houses.
• Duplexes.
• Triplexes.
• Semi-detached houses.
• Row houses.
• Residential condos.
• And other similar premises, with 3 or less dwelling units.

The UHT is applied retroactively to January 1, 2022, and applies to residential properties that are owned on December 31st of each calendar year.

Owners who are not “excluded owners” will have to file an Underused Housing and Tax Return and Election Form annually and pay any resulting taxes by April 30th of the following year. 

The UHT is calculated by taking 1% of the property’s “specified value,” multiplied by the ownership percentage. There are various exemptions available to property owners which can relieve them from having to pay the annual 1% tax.

What Is Underused Housing Tax?

UHT is a 1% tax payable by certain homeowners that are owners of vacant or underused housing in Canada based on the property’s “specified value”. 

• In most cases, specified value refers to the greater of the most recent assessed value for the purpose of property tax or the most recent property sale price.

The intent of the UHT is to target vacant or underused houses in Canada, mainly those owned, directly or indirectly, by individuals who are not citizens or permanent residents of Canada.

While most Canadian individuals are excluded from the UHT, there are situations where certain Canadian individuals have filing obligations. In order for a homeowner to be exempt from all UHT filings, they have to be an excluded owner.

Who Needs to File?

Every person who is identified as an owner of a residential property under the relevant land registration system, other than an excluded owner, needs to file an annual UHT-2900 Underused Housing Tax Return and Election Form. 

The underused housing tax applies to owners of “residential property” situated in Canada. Residential property includes:

• Detached homes or similar buildings, containing not more than three dwelling units, duplexes, triplexes, semi-detached homes, row-house units, residential condominium units and any other similar premises.
• A dwelling unit refers to a residential unit that is a single self-contained set of private living area/rooms, private kitchen, and a private bathroom. 
• CRA considers laneway houses, coach houses, cottages, cabins, and chalets that are not commercial cottages, cabins and chalets as residential properties.

An owner of a residential property refers to the legal owner of the property, meaning the person registered on title. 

• Joint tenants are considered to hold an equal share in the property, and
• Tenants in common are considered to hold the specified interest as evidenced by ownership.

Who Is an Excluded Owner?

Excluded owners have no underused housing tax filing obligations. A homeowner is an excluded owner if on December 31st a homeowner is:

• An individual that is a Canadian citizen or a permanent resident of Canada (except where the individual holds an interest in the property as a partner of a partnership or as a trustee of a trust).
• A corporation incorporated under the laws of Canada or a province and the shares of which are listed on a Canadian stock exchange (Note- private corporations are not excluded owners);
• A registered charity;
• A cooperative housing corporation.
• An Indigenous governing body or a corporation owned by an Indigenous governing body.
• A municipality or a corporation owned by a municipality.
• The government of Canada or an agent of the Canadian Government.
• The government of a province or an agent of the government of a province; and
• Certain other public service bodies (e.g., universities, public colleges, school authorities, hospital authorities).

If a homeowner is not an excluded owner, they are considered an “affected owner” and have a UHT filing obligation and are subject to filing penalties.

Not Excluded Owners – Partner of A Partnership & Trustee of A Trust

Partner of a partnership is not defined as part of the Underused Housing Tax Act. However, the common law definition indicates that two or more persons carry on a partnership if:

• They carry on a business,
• in common,
• with a view to profit.

As such, homeowners need to differentiate between partnership and co-ownership. It is important to note that in order for there to be a partnership there must be a business carried on.

There is a position where a shared interest in an investment property may not constitute a business, but where spouses owning residential property have been reporting their rental income on their T1 personal income tax return as partnership income, it may be difficult to convince the CRA that a UHT filing requirement does not exist.

Trustees of a trust will generally have UHT filing requirements unless the homeowner is a personal representative of a deceased individual or trustee of an estate of a deceased individual.

If a bare trust agreement exists where the legal title holder of a property holds the title for the benefit of another individual (i.e. legal and beneficial title are different), this is considered a trust arrangement and the legal owner will have UHT filing obligations. 

Common Excluded Owners

If a homeowner is an excluded owner, the homeowner will have no underused housing tax filing obligations. Some examples of homeowners who are excluded owners are as follows:

• A Canadian citizen or permanent resident owns a rental property (100% legal and beneficial owner)- no filing obligations as the homeowner is an excluded owner. 
• Non-resident for income tax purposes, but Canadian citizen or permanent resident holds 100% legal and beneficial title to a property- no filing obligations as long as the individual was a Canadian citizen as of December 31st.
• Husband and wife, both Canadian citizens are on title for their principal residence- no filing obligations as the Canadian citizens are on title as co-owners of the residence. No partnership exists as there is no business in common with a view to profit.  

Common Affected Owners

If a homeowner is not an excluded owner, the homeowner is referred to as an affected owner and will have UHT filing obligations. Some examples of homeowners who are affected owners are as follows:

• Two or more persons own a rental property- If a residential property is held as a rental property with a view of profit and sufficient activity to constitute a business, this could be considered a partnership. Therefore, UHT filing obligations may exist. Exemptions from paying the UHT may still be available. 
• Any residential property held by a private corporation- not considered an excluded owner and UHT filings obligations exist. May be exempt from paying UHT if one of the exemptions apply.
• Residential property held by a Trust- UHT filing obligations exist. May be exempt from paying UHT if one of the exemptions applies.
• Residential property held in a corporation – UHT filing obligations exist. May be exempt from paying UHT if one of the exemptions applies.
• Non-resident foreign individuals (not a Canadian citizen or a Canadian permanent resident) who owns residential property- filings obligations exist, may be excluded from paying UHT if one of the exemptions apply.

Exemptions from Underused Housing Tax Payable

If a homeowner is not an excluded owner, there is a UHT filing obligation. However, there are various exemptions that result in a homeowner having no UHT payable. Broadly speaking these exemptions can be categorized as noted below:

• Based on the type of owner;
• Based on availability of the property;
• Occupancy of the property; and
• Location and use of the property.

Please note that you only need to meet one of the exemptions listed below in order to be exempt from paying the UHT.

Underused Housing Tax Exemptions Based On the Type of Owner

• New Ownership
  • Owner acquired the property in the year and did not own that property at any time in the prior 9 calendar years.

• Owner’s Death
  • The personal representative or other legal representative of a deceased individual is exempt for the calendar year in which the owner passed away and for the subsequent calendar year.
    • No UHT is payable for the current or subsequent calendar year if the owner died in the current calendar year. 

• Another Owner’s Death
  • Where an owner with at least a 25% interest in the property dies, any other owner’s interest in the property is exempt for the calendar year in which the death occurred and for the subsequent calendar year.  
• Specified Canadian Corporations
  • Incorporated in Canada and is not:
    • A corporation where 10% or more of the votes or value of the corporation is not held by an individual that is neither a Canadian citizen nor a permanent resident of Canada, or a corporation that is incorporated outside of Canada;
    • A corporation without share capital, in respect of which the chairperson or other presiding office, or 10% or more of the directors or other similar officers, are individuals that are neither Canadian citizens nor permanent residents of Canada; or
    • A prescribed corporation or a corporation of a prescribed class.

• Specified Canadian Partnerships
  • Where all owners/members of the partnership are excluded owners, a specified Canadian corporation, or is a prescribed partnership. 

• Specified Canadian Trusts
  • Owner’s interest in a residential property is that of the trustee of a specified Canadian trust, wherein every person with a beneficial interest in that trust is an excluded owner or a specified Canadian corporation or is otherwise a prescribed trust.

Underused Housing Tax Exemptions Based on Availability of the Property

• A Newly Constructed Property
  • A residential property owner’s interest is exempt for a calendar year if the property was not substantially completed by April of that year.
• Property Held by a Developer as Inventory for Sale
  • A residential property owner’s interest is exempt if the property is constructed in the first quarter of the year and is offered for sale to the public during the calendar year and the property had never been occupied by an individual as a place of residence of lodging during the calendar year
• Property not Suitable for Year-Round Use
  • Not suitable to be lived in year-round or seasonably inaccessible due to public access not being maintained year-round. 
• Uninhabitable Due to Disaster
  • Due to disaster or hazardous situations, the property cannot be inhabited for at least 60 consecutive days in the calendar year. 
  • Can only claim this UHT exemption for two calendar years with respect to the same disaster.
• Uninhabitable Due to Major Renovations
  • Cannot live in the property for a consecutive 120 days due to ongoing major renovations
  • The exemption is only available once every 10 years. 

Underused Housing Tax Exemptions Based on Occupancy of the Property

• Primary Place of Residence in Respect of an Individual
  • Primary place of residence for the year of the individual homeowner, their spouse or common-law partner, or their child attending a designated learning institution.
• Qualifying Occupancy Test– Property occupied in periods of at least one month at a time, totaling at least 180 days in the year by a qualifying occupant. Qualifying occupant includes:
  • An arm’s length individual (to you and your spouse or common law partner) renting the property and there is a written contract; 
  • a non-arm’s length individual paying fair rent with a written contract;
  • the owner or their spouse or common-law partner who has a Canadian work permit; and
  • the owner or their spouse or common-law partner, parent, or child who is a Canadian citizen or permanent resident. 

Underused Housing Tax Exemptions Based on Location & Use of the Property

• Vacation property located in certain prescribed rural areas of Canada and used by an individual owner, their spouse or common-law partner for at least 28 days in the year.
• Prescribed by regulation to be determined by Statistics Canada in the last census report as not being neither within a census metropolitan area nor within a specified census agglomeration and not within a population center.
• Refer to UHT vacation property designation tool to see if the property location qualifies for an exemption (28-day vacation use still has to be met):
  • https://apps.cra-arc.gc.ca/ebci/sres/ext/pub/ntrUhtExpnTl?request_locale=en_CA 

UHT Filing Forms & Due Dates

• Form UHT-2900 is to be filed for each residential property for a calendar year, starting with December 31, 2022. Link to Form UHT-2900 below:
  • https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/uht-2900/uht-2900-22e.pdf 
• Form UHT-2900 and any taxes owing are due April 30th of the following year. 
• Interest will be charged on any amounts not paid by April 30th, based on CRA prescribed interest rates. 

How To File UHT – Mail or Electronic Filing

• Form UHT-2900 may be mailed into the Winnipeg Tax Centre if the address of the homeowner’s residence or corporation is in one of the following:
  • Countries – United States of America, United Kingdom, France, Netherlands, or Denmark
  • Canadian provinces or territories – Alberta, British Columbia, Manitoba, Saskatchewan, Northwest Territories, Nunavut, or Yukon
  • Places in Ontario – anywhere except Barrie, Sudbury, or Toronto
• Form UHT-2900 may be mailed into the Sudbury Tax Centre if the address of the homeowner’s residence or corporation is in one of the following:
  • Countries – any country other than the United States of America, United Kingdom, France, Netherlands, or Denmark
  • Canadian provinces – New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, or Quebec
  • Places in Ontario – Barrie, Sudbury, or Toronto
• UHT may also be filed electronically using the Government of Canada website. Refer to the link below:
  • https://apps.cra-arc.gc.ca/ebci/sres/ext/pub/ntrUhtFlng?request_locale=en_CA    

Underused Housing Tax Filing Penalties

CRA may assess and demand a penalty even if there is no UHT payable. If you fail to file your return by April 30th of the following calendar year, the penalty is calculated as the greater of the following: 

• $5,000 for individuals or $10,000 for corporations, and
• The total of:
  • 5% of the UHT payable for the residential property for the calendar year, and
  • 3% of the UHT payable for the residential property for the calendar year multiplied by the number of complete months that the return is past due.

Additional penalties apply if the homeowner fails to file by December 31st of the following year. In this case, CRA denies various exemptions from calculating the UHT, where the exemptions may actually be applicable if the filings were done by April 30th. 

Manning Elliott Is Here to Help

We are here to help with all your tax needs. If you still have questions about the underused housing tax, our tax experts at one of our Manning Elliott branches can assist you.

For more help in these trying times, check out our blog to read up-to-date articles on the most recent activity related to taxation. 

NOTE: Tax laws are complex and are subject to frequent change. The contents of this article are not intended to represent legal or tax advice. Please consult your tax adviser before employing any strategies discussed here.