September 13, 2022

On June 9, 2022 Bill C-8 received Royal Assent making the Underused Housing Tax Act
(“UHTA”) law. This new legislation requires certain owners of residential property in Canada to file returns annually commencing in 2022, with the first filing deadline coming this April 30, 2023. The UHTA implements an annual tax of 1% on the value of vacant or underused residential property which is not owned (directly or indirectly) by citizens or permanent residents of Canada.

Before you assume this doesn’t apply to you, be aware that penalties for failure to file a return when required is subject to a penalty of the greater of:

  • $5,000 for individual or $10,000 or all others, or
  • 5% of the Underused Housing Tax (UHT) plus 3% of the UHT for each month the return is late.

Needless to say, the failure to file a return could be costly even where there is no UHT liability. Therefore, if you own residential property in Canada and are not an “excluded owner”, you should make sure you understand your reporting and filing obligations.

The UHT doesn’t apply to “excluded owners”. There are a number of persons included in the definition of an “excluded owner” including “an individual who is a citizen or permanent resident”.

Where you do not meet the definition of an “excluded owner”, a declaration must be filed annually to claim an exemption from the UHT, or a return must be filed to pay the UHT tax. This would include privately owned taxable Canadian corporations and Canadian citizens or permanent residents that hold property as a partner in a partnership or as a trustee of a trust. Failure to do so will result in penalties. The UHTA requires the filing of a separate return for each residential property for the calendar year.

If you are not an “excluded owner” there are exemptions for:

  • Specified Canadian corporations, partnerships and trusts;
  • The year of death where certain conditions are met;
  • The year of acquisition in certain situations;
  • Meeting minimum owner occupancy requirements;
  • Property that is uninhabitable for a certain portion of the year or only inhabitable at certain times of the year; and,
  • Limited other situations.

Due to the highly technical nature of the definitions, these exemptions should be discussed with your tax advisor before relying on them.

The amount of vacant or underused housing taxes can be significant, depending on where you own property. For example, in 2017 Vancouver introduced the Empty Homes Tax at 3% of the fair market value of the property, on which the British Columbian Provincial Government piggybacked the Speculation and Vacancy Tax of up to 2%. Adding the UHT of 1% could result in a 6% annual tax on the fair market value of your property.

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