Urgent Notice: Underused Housing Tax (UHT) - Important Filing Obligations and Penalties
Updated: Jul 4
The Canadian government has recently enacted the Underused Housing Tax (UHT) Act. This act, which received Royal Assent in June 2022, is retroactively applied from January 1, 2022. The UHT assesses a 1% annual tax on the value of vacant and underused residential properties owned by foreign non-resident owners, as well as, in some cases, properties owned by Canadian citizens and residents.
Please note the penalty for failing to file a declaration can be significant. For individuals, it's the greater of $5,000 or the total of 5% of the UHT, plus 3% of the UHT for each calendar month the declaration is past due. For non-individual owners, the penalty is $10,000 or the calculated total described above. Note the penalty is per property. Due to these significant penalties, we advise taxpayers to err on the side of filing if there is any uncertainty regarding the obligation to do so. Although some residential properties may be exempt from the 1% tax provided they meet certain conditions, affected owners of residential properties (this includes rental properties), are required to file an annual declaration for each residential property they own within the calendar year. For the tax year 2022, the Canada Revenue Agency (CRA) announced on March 27, 2023, that there will be no penalties or interest assessed for late UHT returns provided, they are filed and any tax owed is paid by October 31, 2023.
Are You Affected?
.You could be affected by the UHT if you fall into any of the following categories:
• An individual who is not a Canadian citizen or permanent resident.
• An individual who is a Canadian citizen or permanent resident and owns a residential property as a trustee of a trust.
• Any person, including an individual who is a Canadian citizen or permanent resident, that owns a residential property as a partner of a partnership.
• A corporation that is incorporated outside Canada.
• A Canadian corporation whose shares are not listed on a Canadian stock exchange.
• A Canadian corporation without share capital.
Please Note: A partnership, from the CRA's perspective, is an association or relationship between two or more individuals, corporations, trusts, or partnerships that join together to carry on business. Each partner contributes money, labor, property, or skills to the partnership. The nature of the relationship between partners (i.e., spouses, common-law, family) is irrelevant to this determination. Like a sole proprietorship, a partnership is easy to form. A simple verbal agreement is enough to form a partnership.
Important Distinction between Filing and Paying the Tax
Please be aware that there is a significant distinction between the obligation to file a UHT tax return and the requirement to pay the tax. Even if your property meets exemptions criteria for paying the tax, you may still have a mandatory filing requirement subject to significant penalties.
We understand this new legislation may be confusing and may have significant implications depending on your circumstances. Our team is here to help.
If you believe you have obligations under the new legislation, please reach out to us to commence an engagement.