The Government of Canada has implemented a tax called the Underused Housing Tax (UHT) on vacant or underused housing in Canada. The Underused Housing Tax Act, which regulates the UHT, was approved on June 9, 2022. The UHT is a yearly federal tax of 1% on the ownership of vacant or underused housing in Canada, and it became effective on January 1, 2022.
An underused housing tax, also known as a vacancy tax or empty homes tax, is a policy that encourages property owners to put their underutilized properties to productive use. In Canada, property taxes are usually determined at the municipal level. They are primarily calculated based on the assessed value of the property and the local tax rates. Property taxes are not typically influenced by whether a property is underused or not. Some municipalities and provinces in Canada have introduced a property vacancy tax. However, the new Underused Housing Tax (UHT) is distinct from that. It requires affected owners to submit an annual return by April 30 of the following calendar year.
Types of owners
There are 2 types of owners for the purposes of the Underused Housing Tax:
- Affected owner
- Excluded owner
Affected owner
You are required to submit a tax return for each residential property that you own as an affected owner on December 31. Additionally, you will need to pay the tax unless you meet the criteria for an exemption. If you own multiple residential properties in Canada, you must file a separate return for each property.
An affected owner includes, but is not limited to, the following owners of a residential property in Canada:
- A foreign national (that is, an individual who is not a Canadian citizen or permanent resident)
- An individual who is a Canadian citizen or permanent resident, and who owns a residential property in Canada as a trustee of a trust (other than as a personal representative of a deceased individual, or as a trustee of a mutual fund trust, real estate investment trust, or specified investment flow-through (SIFT) trust for Canadian income tax purposes)
- An individual who is a Canadian citizen or permanent resident, and who owns a residential property as a partner of a partnership
- A corporation that is incorporated outside of Canada
- A Canadian corporation whose shares are not listed on a Canadian stock exchange designated for Canadian income tax purposes
- A Canadian corporation without share capital
Excluded owner
If you are an owner who is excluded, you are not required to fulfill any obligations under the Underused Housing Tax Act. This means you are not obligated to file a return or make any tax payments.
An excluded owner includes, but is not limited to:
- An individual who is a Canadian citizen or permanent resident (unless included in the list of affected owners)
- Any person that owns a residential property as a trustee of a mutual fund trust, real estate investment trust, or specified investment flow-through (SIFT) trust for Canadian income tax purposes
- A Canadian corporation whose shares are listed on a Canadian stock exchange designated for Canadian income tax purposes
- A registered charity for Canadian income tax purposes
- A cooperative housing corporation, hospital authority, municipality, para-municipal organization, public college, school authority, or university for Canadian GST/HST purposes
- An Indigenous governing body or a corporation wholly owned by an Indigenous governing body
- His Majesty in right of Canada or a province or an agent of His Majesty in right of Canada or a province
Conditions for Filing the Return and/or Pay the Underused Housing Tax
You have to pay the underused housing tax for each of your properties in Canada for which all of the following conditions are met on December 31 of a calendar year:
- the property is a residential property
- you are an owner of the residential property
- you are not an excluded owner of the residential property
- your ownership of the residential property is not exempt from the underused housing tax for the calendar year
Simply put, if you own a residential property on December 31 of a given year, you are required to pay the underused housing tax for that year, unless your ownership of the property is exempt from the tax.
Even if your ownership of a residential property is exempt from the underused housing tax for a calendar year, as an affected owner, you still have to file a return for the residential property.
Exemption
a) Primary residence : You may be exempt from paying the tax if the property is Used as a primary place of residence
b) Qualifying occupancy: To qualify for this exemption, a dwelling unit that is part of the residential property must be occupied by a qualifying occupant for one or more qualifying occupancy periods totalling at least 180 days in the calendar year
c) Availability of the residential property: You may be exempt from paying the tax if the property is any of the following:
Newly constructed
- Not suitable to be lived in year-round, or seasonally inaccessible
- Uninhabitable for a certain number of days because of a disaster or hazardous conditions, or a renovation
d) Location and use of the residential property: Only affected owners who are individuals qualify for this exemption
- A vacation property located in an eligible area of Canada and used by you or your spouse or common-law partner for at least 28 days in the calendar year
Penalties and interest for failing to file the return on time
There are significant penalties for not filing the return on time. The minimum penalty for individuals is $5000, and for corporations, it is $10000.
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