Are you involved with a home that is not owned directly by a human being who is either a Canadian citizen or a permanent resident of Canada?
- A cottage is held in a Trust, which the family patriarch set up before his death years ago, so that his grandchildren can share the use of the cottage.
- A family member overseas is the registered owner of a condominium in Vancouver.
- A private corporation owns a townhouse that it rents out.
Beware the new Underused Housing Tax (UHT)!
The Underused Housing Tax Act was enacted by the Liberals last year, and is now in force. It is designed to tax homes and condos that are owned by non‑Canadian investors who are not resident in Canada, and that are not rented out, as a way of discouraging such ownership and making more rentals available. The tax is 1% per year of the property’s value.
To prevent such owners from avoiding the UHT by placing the home in a corporation, trust, or partnership, all such entities owning residential property are caught by the system and must file returns. If there is no non‑Canadian ultimate owner, no tax is usually payable — but the filing requirement remains, and there are huge penalties for not filing.
Generally, the only residential property owners not required to file a UHT return are:
- an individual (human) who is a Canadian citizen or permanent resident
- a public corporation listed on a Canadian stock exchange
- a registered charity, co‑op housing corporation or Indigenous governing body or corporation.
Others must file even if no tax is owing. And the penalties for non‑filing are severe: minimum $5,000 for an individual and $10,000 for a corporation! As well, by not filing the owner may lose the ability to claim an exemption, so that the tax will apply when it should not have applied.
The first UHT returns are due no later than Monday, May 1, 2023 (normally April 30, but since that’s a Sunday it’s extended to Monday this year).
The Canada Revenue Agency has a helpful web page at canada.ca/cra-uht, explaining how the UHT operates. Lots more detail is available from other sources online. But you have to be aware of the problem, or you won’t go looking for this information.
If you, or any non‑Canadian friends or family members — or any corporation, trust, or partnership — may be required to file a UHT return, then check the rules or get professional advice, and find out right away what your obligations are. Even if you won’t need to pay any tax, you might need to avoid the $5,000 or $10,000 penalty.
And finally, note that the penalties can be more than the minimum. The penalty is also 5% of the tax owing, plus 3% per month, with no minimum. If you miss filing for several years, the penalties for multiple unfiled returns will grow exponentially.