Underused Housing Tax 0

Posted On March 23, 2023, by Admin

If you’ve heard of the Underused Housing Tax (UHT), but are unsure what this tax is and how it affects you, check out the following article. It explores how UHT works, whether it applies to you, and how to calculate and file it.

What Is the Underused Housing Tax?

The Underused Housing Tax is one of three “vacancy” taxes recently introduced into the federal budget. It’s a tax on underused or vacant real estate ownership and its purpose is to discourage owners from holding unoccupied or unrented properties. The tax is equal to 1% of the property’s taxable value,.

The UHT targets foreign owners of Canadian real estate, however, it may also apply to Canadian property owners, depending on their circumstances. The sections below provide more information on this topic.

What are the Terms of the UHT, and to Whom Does It Apply?

There are two main parameters in determining whether the Underused Housing Tax pertains to you: the property you own and your ownership status.

The UHT applies to properties that Canadian law defines as residential. The term refers to houses or buildings comprising up to three dwelling or individual units within a building with separate ownership. In that sense, the UHT is chargeable for condos, duplexes, detached houses, semi-detached houses, rowhouse units, and so on, but not traditional apartment buildings.

All residential property owners in Canada are liable to the UHT unless they fall into the category of excluded owners. To qualify as an excluded owner, you must be:

• A citizen or a permanent resident of Canada
• A Canada-based corporation with shares listed on the registered Canadian stock exchange
• An individual who owns a residential property as a trustee of a real estate investment, mutual fund, or a specified investment flow-through trust on registered the Canadian exchange
• A cooperative housing corporation for Canadian GST/HST purposes (municipal organizations and public institutions like hospitals, public colleges, universities, schools, and the like)
• A registered charity
• An Indigenous governing body or a corporation it owns

If you don’t meet any of these criteria, the Underused Housing Tax Act classifies you as an affected owner. An Affected owner includes:

• An individual that is not a Canadian citizen or permanent resident.
• An individual that is a citizen or permanent resident who owns residential property as a partner in a partnership or as a trustee of a trust.
• A foreign corporation.
• A Canadian corporation not traded on a stock exchange.

As such, you’ll need to file a UHT return for each property you own in Canada. The penalty for failing to file the UHT is $5,000 for individuals and $10,000 for corporations minimum.

Ownership-Based UHT Exemptions

The UHT is subject to several ownership exemptions. They absolve residential property owners from paying the UHT for a calendar year based on the virtue by which they own a property and its location, availability, use, and occupants during the same year.

The exemptions include those who co-own properties with deceased persons, uninhabitable or recently constructed properties, estates occupied for a portion of the year, and so on. You can find the complete list of ownership exemptions on the CRA’s official site. Exemption eligibility is determined on December 31 every year.

Please note that the UHT isn’t debt-dependent. You must include it in your tax return for the calendar year when you qualified as an affected owner, even if your ownership exemption applies.

How to File the Underused Housing Tax

Affected owners can file their UHT taxes digitally or by mail. The deadline for the UHT tax returns and exemptions for both centres and the electronic filing system is April 30, the following calendar year.

How to Calculate Your UHT

The amount you owe to the CRA under the Underused Housing Tax Act depends on your property’s value. Most Canadians calculate the tax using the taxable value of their property. However, you can also rely on the fair market value of the real estate you own if you:

• File an election with the Agency
• Have the property appraised by an independent accredited real estate appraiser
• Prepare an appraisal report whose primary use is to assist with the Underused Housing Tax Act administration

Once you’ve determined the value of your property, multiply it by 1% UHT, and multiply that number by your ownership percentage. The result you get is your Underused Housing Tax return for the year.

If you own multiple residential properties, you’ll have to repeat this process and file separate UHTs for each one. Conversely, if your property has multiple owners, each affected entity must file a separate UHT based on the portion of the property they own. The latter is true regardless of whether the owner qualifies for an exemption.

Conclusion

Have questions about this new tax and how it could apply to your situation? Reach out to us and let’s discuss.

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This blog is not meant to provide specific advice or opinions regarding the topic(s) discussed above. Should you have a question about your specific situation, please discuss it with your GBA advisor.

GBA LLP is a full-service accounting firm in the Greater Toronto Area, but we primarily service all of Ontario as well as the rest of Canada virtually, except Quebec. Our team of over 30, provides Audits and Reviews of financial statements, and Compilations of financial information, as well as corporate tax returns.  We provide specialized corporate tax and succession planning for small and medium businesses, in addition to general advisory services.

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