Important Update – November 1, 2023

On October 31, 2023, the Canada Revenue Agency announced a new extended deadline for filing UHT returns. The application of penalties and interest under the UHTA for the 2022 calendar year will be waived for any late-filed underused housing tax (UHT) return and for any late-paid UHT payable, provided the return is filed or the UHT is paid by April 30, 2024.

Previously, on March 27, 2023 the Canada Revenue Agency announced that “to provide more time for affected owners to take necessary actions to comply, the Minister of National Revenue is providing transitional relief to affected owners. The application of penalties and interest under the UHTA for the 2022 calendar year will be waived for any late-filed underused housing tax (UHT) return and for any late-paid UHT payable, provided the return is filed or the UHT is paid by October 31, 2023.

Additionally, we expect more clarification from CRA on who this legislation will affect, which may result in the below information requiring further amendment.  The following reflects our current understanding of the new rules.

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Overview of Underused Housing Tax (UHT)

In 2022 the Canadian Government implemented the Underused Housing Tax (“UHT”) legislation to make it less attractive for foreign owners to own residential dwellings in Canada that are not being occupied by implementing a 1% annual tax on the value of the property.

However, this legislation casts a very broad net that will require many Canadians, who do not actually have to pay the tax, to file the UHT return by April 30, 2023 or face the significant annual financial penalties of:

• For individuals – a minimum of $5,000 per property
• For private corporations – a minimum of $10,000 per property.

What is a Residential Dwelling?

Per CRA, a residential property is defined as property that is one of the following, located in Canada:

• Detached house.
• Semi-detached house.
• Duplex or Triplex.
• Laneway houses and coach houses.
• Townhouse or rowhouse unit.
• Residential condominium unit.
• Cottages, cabins, and chalets that are not commercial cottages, cabins, or chalets.

The property described above must have a private kitchen, private bathroom, and private living area to be considered a private dwelling.

Who Must File the UHT Return?

Legal owners (parties listed on land titles) at December 31, 2022 described below are considered “Affected Owners” and are required to file the UHT form:

• Canadian individuals and corporations who are partners of a partnership that holds a residential property.
  • Applies if the partnership is conducting a business of providing ancillary services such as cleaning, laundry, etc.
  • Does not apply in common rental arrangements where the owners are only providing access to the property along with utilities and general maintenance.
• Canadian individuals and corporations who are trustees of a trust (including a bare trust) that holds residential property.
  • Not including trusts that were created upon the death of another person (referred to as a testamentary trust).
• Canadian private corporations that legally own a residential property (this includes home builders).
• Non-Canadian corporations that own a Canadian residential property in any capacity.
• Individuals who are neither Canadian citizens nor permanent residents of Canada who own residential property in any capacity.

If you are the legal owner and you meet the following condition, you are considered an “Excluded Owner” and you do not need to file the UHT return:

• You are a Canadian citizen or permanent resident of Canada who personally owned residential property as an individual or co-owner.

This exclusion is intended to cover off properties that are owned by individuals in the following cases:

• Individual or couple that own their principal residence or vacation property.
• Individual that owns a rental property (note that a couple owning a rental property are not excluded, see below)

Common Situations Where Someone Will Need to File a UHT Return:

• A private corporation owning a residential dwelling
• Anyone listed on land titles that is not the beneficial owner of the property:
  • A person who is on title because they co-signed a mortgage such as a parent helping a child buy a home.
  • A couple owns a rental property together, but only one spouse is on title.
  • A person on title to assist in the administration of a property or to avoid probate in an estate. This is common when an aged parent or infirm individual puts a family member on title to a property.
  • A person that is on title for a property that has been recorded as owned by a corporation.
  • A person on title for a property they sold in 2022, but the land title did not get changed until 2023. This person can be considered a trustee for the new owner.
• A party that owns agricultural land that may have a residential dwelling on the land.

Will I Owe the Tax?

Likely not, there are many exemptions that will prevent you from actually having to pay the 1% tax on value. However, these exemptions do not exclude you from needing to file the UHT return.

Now What Do I Do?

If you have any questions about the UHT or think you may need to file, please contact your KWB Advisor so we can help evaluate your situation.

WARNING: This information is for educational purposes only. As it is impossible to include all situations, circumstances, and exceptions in a summary such as this, a further review should be done by a qualified professional. No individual or organization involved in either the preparation or distribution of this document accepts any contractual, tortuous, or any other form of liability for its contents or for any consequences arising from its use.