Underused housing tax penalties now applicable

From November 1, 2023, penalties for late filing of Underused Housing Tax (UHT) returns come into effect. These penalties apply from the UHT return due in 2023 onwards.As discussed in our April 2023’s Tax Letter, the UHT regime was introduced last year to try to combat the underuse of residential property, particularly property owned by non-residents.

The regime imposes an annual tax of 1% of the relevant property’s value. There is also an annual reporting requirement, unless one or more exemptions are met. In some circumstances, there may be an obligation to file a return but no obligation to pay tax. Filing is required for residential property owned by a corporation, partnership or trust even if no non-resident is involved, with severe penalties for non-filing!

Liability is determined based on the ownership of the property at December 31 each year, with the filing and tax payment deadline being April 30 of the following year.

As 2023 is the first year of the new tax, the CRA extended the filing and tax deadline to April 30, 2024 to give people time to become aware of the regime and understand it. However, there will be no further extensions.

Generally, Canadian citizens and Permanent Residents are exempt from both the filing and tax requirements, provided that the property is registered in their name as an individual (and not, for example, as a trustee of a trust). However, property held by corporations, trusts and partnerships, as well as property held by non-residents, may be caught. The CRA provides a self-assessment tool to check potential liability here.

Some individuals and entities caught may have only a filing requirement, as there are various tax payment exemptions which may apply. However, penalties still apply for late filing, even if there is no tax liability.

And the penalties are significant. For individuals, the minimum penalty for late filing is $5,000. For corporations, the minimum penalty is $10,000. Penalties may be higher depending on the value of the property and the length of time that the return remains unfiled after the filing deadline. Interest may also be due on any unpaid tax liability.

To potentially compound the penalty impact, a return is required for each property owned and a return is required by each owner if a property is owned by more than one person.

Relief from penalties and interest may be available under the taxpayer relief regime (see our October 2023 Tax Letter for an explanation of this).

If you suspect that a property owned by you (or a company, partnership or trust that you are connected with) may be caught by the UHT rules, seek professional advice immediately.