Underused Housing Tax for Canadian Real Estate Investors

At first glace, the underusing housing tax (UHT) is primary targeted at foreign owners of Canadian residential real estate. But due to the broad drafting of the legislation, many Canadians may find themselves caught under these new rules. Failure to file the UHT return can result in hefty penalties of over $10,000. Read more to learn how the underused housing tax impacts Canadian real estate investors.

What is the Underused Housing Tax (UHT)?

Effective January 1, 2022, UHT is an annual tax imposed by the Federal government on “affected owners” who are not making productive use of “residential property” that they own.

A reportable “residential property” generally includes:

• A detached house or similar building that contains not more than three units
• A semi-detached house, rowhouse unit, residential condominium unit, or other similar premises

Generally, the tax is calculated as 1% of the value of the residential property.

The UHT return and tax liability are due annually on April 30^th.

Who is Required to File a UHT Return?

An “affected owner” is required to file a UHT return, although they may not necessarily owe tax. (I’ll explain further below.)

An “affected owner” is the owner of a residential property who does not fall under the list of “excluded owners”.  Common “excluded owners” include:

• An individual who is a Canadian citizen or permanent resident of Canada (except in certain situations where the individual is trustee of a trust or partner of a partnership).
• A Canadian corporation whose shares are listed on a designated Canadian stock exchange.
• A registered charity.

While the above list is not exhaustive, what is clearly missing are exclusions for privately owned Canadian corporations, trusts, and partnerships. These are some of the most common structures that Canadian real estate investors use to hold properties!

The minimum penalty for an affected owner who fails to file a UHT return is $5,000 for individuals and $10,000 for corporations and other entities. These penalties apply regardless if tax is owing.

UHT for Bare Trusts and Nominee Corporations

For the purposes of UHT, an affected owner is the title holder of the residential property. For example, a corporation which holds title to a residential property under a bare trust arrangement may be required to file a UHT return even though it has no beneficial ownership in the real estate.

Will I Owe Tax if I File an Underused Housing Tax Return?

Not necessary.

There are various exemptions available to affected owners to eliminate their tax liability.

Some common exemptions include situations where:

• The residential property was purchased during the calendar year.
• The residential property is owned by a Canadian corporation where less than 10% of its shares are owned by foreign individuals or foreign corporations.
• The residential property is rented to an arm’s length individual for an aggregate of at least 180 days during the calendar year, where each period of occupancy lasts at least one month.

How do I File a UHT Return?

There are 3 methods to file a UHT return:

1. Electronically via Canada Revenue Agency’s (CRA) “My Account” for individuals or “My Business Account” for corporations.
2. Directly on CRA’s website here.
3. By mailing this paper return (Form UHT-2900) to CRA.

If you are filing the UHT return for a corporation, you must first obtain an Underused Housing Tax program account identifier code from CRA.

Note that this article represents a simplified discussion of the Underused Housing Tax rules. For further details, please visit CRA’s website.

The content of this blog is intended to provide a general guide to the subject matter. Professional advice should be sought about your specific circumstances.