The underused housing tax is a relatively new tax that is designed to affect those who own property in Canada but are not necessarily Canadian residents. Essentially, it is a 1% tax on vacant or “underused” housing. While it is designed to only apply to non-residents, there are situations where it might apply to residents, too. In addition, certain areas of Canada have underused housing taxes on top of the federal-level taxes. Understanding Canada’s underused housing tax is often easier with the help of a Canadian tax lawyer. To ensure your legal and financial rights are protected, call Jeremy Scott Law for more information or to schedule an appointment: (902) 403-7201.
What Is the Underused Housing Tax?
The Government of Canada has noted an uptick in housing demands throughout the country. At the same time, some homes sit vacant for all or part of the year. Many of these homes are owned in whole or in part by non-residents. They might be vacation homes or part-time use residences. To balance these two competing interests, the Government of Canada began imposing an underused housing tax of 1%. The tax encourages people to use their properties while also increasing the cost for non-residents to own property in Canada. The underused housing tax took effect in 2022 and will continue indefinitely.
How To Pay the Underused Housing Tax (UHT)
Those who must pay the UHT must file a return, Form UHT-2900, the Underused Housing Tax Return and Election Form. This return is required for each property. Property owners can file it online or through the mail. The UHT goes by the calendar year, so if the property owner qualified as an “affected owner” as of December 31, they need to file a UHT return for that calendar year.
If a property owner is required to file a tax return for the UHT and they do not file, they face a minimum penalty of $5,000. Affected corporations face steeper penalties—a minimum fine of $10,000.
How to Calculate the Underused Housing Tax
The 1% tax rate is based on the value of the property. That is, the tax is 1% of the property’s taxable value, paid annually. If an owner only owns a percentage of the property (instead of the whole property), then they are only required to pay 1% of the value of their share of the ownership.
The value of the property used for the UHT is the taxable value (as used for property taxes). However, property owners might be able to use the fair market value instead of the taxable value to determine the UHT. Property owners need to file an election with the Canada Revenue Agency if they want to do this. To use the fair market value, an appraisal prepared by an accredited, professional is required. The appraiser must also be unrelated or unknown to the property owner—it must be an arm’s length appraisal to ensure it is fair and unbiased.
How to Determine Who Pays the Underused Housing Tax
The UHT was designed to be imposed on foreign property owners. However, there are situations where a Canadian resident might also have to pay this tax. Only “affected owners” must file and pay this tax. According to the Government of Canada, “excluded owners” have no obligations or liabilities related to Canada’s Underused Housing Tax. However, determining who is an affected owner or excluded owner can be challenging. Jeremy Scott Law may be able to help you determine which category applies to your situation.
In general, an excluded owner consists of the following categories of people:
- Any citizen or permanent resident, unless they are considered an affected owner
- Any person that owns residential real estate as a trustee for certain types of trusts, such as REITs, SIFTs, or a mutual fund trust
- Canadian corporations whose stocks are listed on a Canadian stock exchange
- Registered charities
- Cooperative housing corporations
- Indigenous governments or corporations owned by an Indigenous governing body
Affected owners have one or more of the following attributes:
- Not a citizen or permanent resident
- Any person who owns residential real estate as a trustee for a trust (other than for a deceased person)
- Any person who owns the residential property as a partner in a partnership
- Foreign corporations
- Canadian corporations whose shares are not listed on a Canadian stock exchange or without share captial
An affected owner must file a UHT return. However, affected owners might still qualify for an exemption based on their property type or several other factors. Even if an affected owner qualifies for an exemption, they must still file a UHT return to provide information about the exemption.
UHT Taxing Exemptions
An affected owner might still qualify for an exemption. Qualifying for an exemption means they will not be required to pay the tax, but they will generally still need to file a UHT return to claim the exemption.
For example, owners who are specified Canadian corporations, partners in a specified partnership, or trustees of a specified Canadian trust will generally qualify for an exemption. New owners during the calendar year and new construction builds will also usually qualify for an exemption. Some seasonal properties might also be exempt.
Vacation Properties in Eligible Areas
An exemption may also be available for certain vacation homes in designated areas throughout Canada. However, these properties must have had some use during the year—a minimum of 28 days during a calendar year by either the property owner or their spouse.
The Government of Canada provides a handy underused housing tax vacation property designation tool that allows property owners to determine whether they qualify for the vacation property exemption. Specifically, it will provide information about whether the property is located in an eligible area based on postal code.
Get Help with UHT for Your Property
Canada’s underused housing tax is new, and some of its nuances can be confusing. You may want to consider getting legal help with this tax from an experienced Canadian tax lawyer. Contact Jeremy Scott Law for more information or to schedule an appointment. Call (902) 403-7201 today.