What is the Underused Housing Tax?
Effective January 1, 2022, the Underused Housing Tax (UHT) was introduced by the Canadian federal government with the objective of applying a one percent annual tax on the value of vacant or underused residential properties located in Canada. The goal of the newly implemented legislation is to mainly penalize non-resident, non-Canadian owners of vacant or underused residential property. As a result, the tax generally applies to residential property owned by foreign individuals who are not Canadian citizens or permanent residents – in certain circumstances, the rule may also apply to residential real estate owned by Canadian entities. 1 This UHT was implemented on June 9, 2022 and applies to those who own residential property as of December 31, 2022. 2
What Types of Properties are Affected by the Underused Housing Tax?
According to the Government of Canada, the UHT applies to Canadian residential
property which include, but are not limited to: 3
- Detached houses
- Duplex
- Triplex
- Semi-detached house
- Townhouse or rowhouse unit
- Residential condominium unit
- Other similar property types that contain three or fewer dwelling units
Who Needs to File the Underused Housing Tax?
Under the UHT, all affected owners of residential property in Canada on or before December 31, 2022 must file an Underused Housing Tax return (UHT-2900) by April 30 of the subsequent calendar year. 4 Affected owners, unless qualified for an exemption, are required to pay the one percent tax of the property’s value (calculated as the greater of the property’s assessed value or most recent sale price) multiplied by the ownership percentage.5 It is important to note that even if an affected owner’s residential property qualifies for a tax exemption, he or she is still required to file a UHT-2900. Excluded owners of residential property, on the other hand, are not required to file an Underused Housing Tax return.
Who Qualifies as an Affected Owner?
As previously stated, all affected owners of residential property are required to file an Underused Housing Tax return. The following criteria below applies to affected owners: 6
- A foreign individual who does not hold Canadian citizenship or permanent residency
- An individual who holds Canadian citizenship or permanent residency and owns residential real estate as a trustee of a trust (with the exception of acting as a personal representative of a deceased individual)
- Any individual who owns residential real estate as a partnership
- A corporation that is not incorporated in Canada
- A Canadian corporation with shares not listed on a Canadian stock exchange
- A Canadian corporation that does not hold any share capital
Who Qualifies as an Excluded Owner?
Excluded owners are not obligated to file a UHT-2900. To qualify as an excluded owner, one of the following criteria must be met: 7
- An individual who holds Canadian citizenship or permanent residency
- A Canadian corporation whose shares are publicly traded on a Canadian stock exchange
- A registered charity
- Any individual who owns residential real estate as a trustee of a trust
- A cooperative housing corporation
- An Indigenous governing body or a corporation that falls under the ownership of an Indigenous governing body
- A government body, municipal organization, or other public service organization
What are the Exemptions to the UHT?
Although an individual may be an affected owner of the UHT, he or she may be eligible for an exemption which is strictly dependent on: 8
1. the type of ownership
2. the occupancy of the property
3. the availability of the property
4. the location and use of the property
Type of Ownership Exemption
The first exemption is based on the type of ownership of the residential property. To
qualify for this exemption, one of the following criteria must be met: 9
- a new owner in the calendar year (must not have owned the property in the past nine years)
- a deceased owner, or a representative or co-owner of the property of the deceased owner
- the residential property is owned by a specified Canadian corporation, a partner of a specified Canadian partnership, or a trustee of a specified Canadian trust
Occupancy of the Property Exemption
The second exemption is based on the nature of the occupancy of the property. To fall
under this exemption, the owner must satisfy the following: 10
- the residential property is the primary place of residence for the owner, the owner’s spouse or common-law partner, or the owner’s dependents attending a designated educational institution
- the qualifying occupancy period test, where the property must be occupied for no less than 180 days in the calendar year, which consists of one or more periods that are at least one month in length through:
2. a written rental contract with a non-arm’s length party who pays fair rent to the owner |
3. the owner, or owner’s spouse or common-law partner who holds a work permit in Canada |
4. the owner’s spouse, common-law partner, parent, or dependent who holds Canadian citizenship or permanent residency |
Availability of the Property Exemption
This exemption is based on the availability of the residential property, where the exemption may be claimed provided that the property is: 11
- a newly constructed property
- uninhabitable year-round or partially inaccessible on a seasonal basis
- uninhabitable for no less than 120 consecutive days due to renovations or in complete construction
- uninhabitable for at least 60 consecutive days due to disaster or hazardous conditions
Location and Use of the Property Exemption
The final exemption relates to the location and use of the residential property, where an
exemption may be eligible where:
- the property is a vacation property located in a designated area and is used by the owner or their spouse or common-law partner for at least 28 days in a calendar year
How to File the UHT and Penalties for Late Filing
The UHT may be filed either by mail or electronically. If elected to file by main, the UHT-
2900 form must be mailed to either the Winnipeg Tax Centre or the Sudbury Tax Centre
depending on the owner’s location of residence. Failure to file the UHT in a timely manner
(before April 30 th ) may result in late penalty charges, which include a minimum penalty of
$5,000 for individuals and a minimum of $10,000 for corporations.
For those with address of residences located in any of the following locations, the form may be mailed to the Winnipeg Tax Centre: 12
- Canada – Alberta, British Columbia, Saskatchewan, Manitoba, Northwest Territories, Nunavut, Yukon, and all locations in Ontario with the exception of Toronto, Barrie and Sudbury
- International – United States of America, United Kingdom, France, Denmark, Netherlands
Winnipeg Tax Centre
Post Office Box 14001
Station Main
Winnipeg MB R3C 3M3
Canada
For those with address of residences located in any of the following locations, the form may be mailed to the Sudbury Tax Centre:
- Canada – Quebec, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, and only those located in the cities of Barrie, Sudbury or Toronto in Ontario
Sudbury Tax Centre
1050 Notre Dame Avenue
Sudbury ON P3A 5C2
Canada
If elected to file online, the UHT may be filed on the following website:
https://apps.craarc.gc.ca/ebci/sres/ext/pub/ntrUhtFlng?request_locale=en_CA
1 https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html
2 https://www.mnp.ca/en/insights/directory/underused-housing-tax-act
3 https://www.mnp.ca/en/insights/directory/underused-housing-tax-act
4 https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html
5 https://www.manningelliott.com/blog/underused-housing-tax-
uht#:~:text=Form%20UHT%2D2900%20is%20to,30th%20of%20the%20following%20year.
6 https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html
7 https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html
8 https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html
9 https://www.mnp.ca/en/insights/directory/underused-housing-tax-act
10 https://www.mnp.ca/en/insights/directory/underused-housing-tax-act
11 https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html
12 https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html#2