WHAT IS THE UHT?
The Underused Housing Tax is an annual federal 1% tax on the ownership of vacant or underused housing in Canada that took effect on January 1, 2022.
The filing generally applies to foreign national owners of housing in Canada. However, in some situations, this filing requirement also applies to some Canadian owners (such as certain partners, trustees, and corporations).
For Canadian owners, you must file an Underused Housing Tax return for each of your properties in Canada for which all of the following conditions are met on December 31:
• The property is a residential property AND
• You are an owner of the residential property AND
• You are determined to be an affected owner of the residential property
Based on our research we have determined an affected owner to be one of the following:
• A corporation that owns residential property.
• A partner of a partnership that owns residential property.
• A trust that owns residential property.
• A farm or business partnership that uses residential property.
• Residential property owners who have added beneficiaries to their property title for estate purposes.
If all the individuals involved in the corporation, partnership or trust are Canadian residents, then the property is exempt from tax on the UHT return, but you are still required to file the form. This will be the most common outcome for our clients. See further down for common situations that require filing.
FILING DEADLINE
The filing deadline for the UHT is April 30 every year for individuals and corporations for any properties owned on December 31 of the prior year.
The first filing period is for December 31, 2022 – that filing deadline has been extended to April 30, 2024. So, in effect, you may be filing the 2022 and 2023 UHT returns together.
LATE FILING
Late filing penalties are based upon whether you are required to file, not on the tax owing, so it is imperative that you file a return if you are an affected owner.
For affected individuals, the late filing penalty is $5,000 per property per year. For affected corporations, the late filing penalty is $10,000 per property per year.
Common situations that MUST file a UHT return:
- Residential property owned by a company – It doesn’t matter whether it is rented out or vacant or not. Farm companies that have purchased land with yard sites on them, if there is a residential property on that yard site, then the company must file a UHT return. Even if the house is uninhabitable. If the home quarter is owned by your farm company, it must file a UHT return, even if the residential property is your principal residence.
- Farm partnerships where a house is situated on the home quarter – If the partnership uses the home quarter in any capacity for business purposes (storing grain, storing equipment, farming the land, etc), then you must file a UHT return.
- Spouses in a common business partnership – If the partnership claims business space in their home and expenses it on their personal tax return, you each must file a UHT return.
- Individuals on title of someone else’s residential property -If you are listed on the property title of your parent’s home, grandparent’s home, or child’s home, unless it is for the express purpose of getting mortgage financing, you must file a UHT return. This commonly occurs when a parent adds a child to their property title for estate planning purposes to avoid probate taxes upon death – the child in this situation must file a return.
Common situations that do NOT have to file a UHT return:
- Rental properties where you only provide basic rental services are not considered to be partnership income (even if your structure is a partnership for income tax purposes), for UHT. It is considered to be property income only. If you provide more than basic rental services, such as cleaning services, grocery services, doing laundry; then this is partnership income and a UHT return would need to be filed.
- Vacation property co-owned with your spouse, so long as you are both Canadian residents, is not required to file a UHT return.
- If you are an executor of an estate, and the individual who passed away was a Canadian resident, then you are considered only their personal representative and not the trustee of a trust, and do not have to file a UHT return for residential property owned by the estate.
UPDATE:
- Penalties and interest for the 2022 filing have now been waived until April 30, 2024. The deadline to file 2022 and 2023 UHT returns will both be April 30, 2024.
- The fall 2023 economic update has proposed to expand who is considered an ‘excluded owner’ (ie. those taxpayers who do not have to file a UHT return) to include specified Canadian corporations, partnership or trusts. If the proposal is accepted, it would be effective for 2023 and subsequent years – they would still need to file for 2022. They also proposed to reduce the penalties for failing to file to $1,000 for individuals (from $5,000) and to $2,000 for corporations (from $10,000) effective for 2022 an subsequent years. The proposal is in a consultation period until January 3, 2024 with potential legislation to come forward afterwards.
For more information about the UHT, please visit https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html