The Government of Canada has introduced in its 2021 budget an underused housing tax (UHT) on the ownership of vacant or underused housing in Canada. The Underused Housing Tax Act (UHTA) received royal assent on June 9, 2022, and took effect on January 1, 2022. While the tax is generally aimed at non-Canadian or non-residents of Canada, there are situations where the rules could apply to Canadian residents. Canadian residents do not have to pay the tax but may have to file a return and claim an exemption.
Underused Housing Tax
The UHT imposes a 1% annual tax on the value of a residential real estate that is considered to be vacant or underused that is owned on December 31 of each year. The tax targets property owned by non-Canadians; however, the scope of filing requirements extends to many Canadian individuals and entities, including Canadian Controlled Private Corporations (CCPC) and trustees of a trust.
Filing and taxes are due by April30 of the following year. Failure to file will be subject to face minimum penalties of $5,000 for individuals or $10,000 for corporations – even if no tax is payable.
Who does the UHT Apply to?
The UHT is payable by non-resident non-Canadian owners of vacant or underused housing in Canada. Most Canadian owners of residential property are excluded owners and, therefore, do not have any obligation and liability under the UHTA. However, in limited situations, the UHT is payable by certain Canadian owners of residential housing.
Starting with the 2022 calendar year and for each following calendar year, owners of residential housing in Canada must determine their obligations and liabilities under the UHTA. Owners would fall under one of three categories:
1. Owners that are required to file an annual return and pay the underused housing tax.
2. Owners that are required to file the return but with no tax payable due to an exemption.
3. Owners who do not have to report under the UHTA or UHT obligation.
Who Must File a Return and Pay UHT
A UHT return must be filed for each of your properties in Canada for which all of the following conditions are met on December 31:
1. The property is a residential property, and
2. You are an owner of the residential property, and
3. You are determined to be an affected owner of the residential property.
What is a Residential Property
A residential property is defined as property that is either:
a) A detached house or similar building that contains a maximum of three units, including the related land.
b) A semi-detached house, townhouse unit, residential condominium, or other similar premises, including the related land.
Who is an owner
You are an owner of a residential property if any of the following apply:
· You are identified as an owner of the property in the land registration system where the property is located.
· You are considered an owner of the property based on a land registration system.
· You are a life tenant under a life estate in the property.
· You are a life lease holder of the property.
· You are a lessee that has continuous possessions of the land on which the property is situated under a long-term lease of at least 20 years, or the lease contains an option to purchase the land.
Property owners can be categorized as either an affected owner or an excluded owner. Affected owners must file an annual return for each property. If a property is owned by several affected owners, each affected owner must file a separate return for the property. Excluded owners you do not have to file a return or pay the tax.
An affected owner includes, but is not limited to, the following owners of a residential property in Canada:
· A foreign national; an individual who is not a Canadian citizen or permanent resident (Canadian resident).
· An individual who is a Canadian resident who owns a residential property in Canada as a trustee of a trust (other than as a personal representative of a deceased individual and other than as a trustee of a mutual fund trust, real estate investment trust or SIFT trust for Canadian income tax purposes).
· A Canadian resident 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; this would include Canadian Controlled Private Corporations (CCPC).
· A Canadian corporation without share capital.
If you are a Canadian resident who is an affected owner, you have to file an annual return for the residential property. Whether you have to pay the UHT for the residential property depends on whether your ownership of the property is exempt from the underused housing tax for a calendar year. If the property is exempt, you need to indicate the applicable exemption in your return.
If you are an excluded owner, you have no obligation under the UHTA. You do not have to file a return or pay the tax.
An excluded owner includes, but is not limited to:
· An individual who is a Canadian resident, unless included in the list of affected owners.
· Any person that owns a residential property as a trustee of a mutual fund, real estate investment trust, or specified investment flow-through (SIFT) trust for Canadian income tax purposes.
· A Canadian corporation whose share are listed on a Canadian stock exchange (public corporation).
· 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.
Exempted Residential Properties
Where certain conditions are met, your ownership of a residential property may be exempt from the underused housing tax if the property is any of the following:
· A vacation property that is located in an eligible area of Canada.
· Used as a primary place of residence or for qualifying occupancy (at least 180 days in the calendar year).
· Not suitable for year-round use.
· Seasonally inaccessible.
· Uninhabitable during the calendar year because of renovation, a disaster, or hazardous conditions.
· Newly constructed.
Your ownership of a residential property may also be exempt if you are of the following:
· A partner of a specified Canadian partnership, a trustee of a specified Canadian trust or a specified Canadian corporation.
· A new owner
· A deceased individual, or their personal representative or co-owner.
To help you determine if your ownership of a residential property is exempt from the underused housing tax for a calendar year, refer to the various Underused housing tax notices published by the Government of Canada.
Annual Mandatory Filing Requirements
A person(individual or corporation) must file a UHT return for a calendar year if, on December 31:
· The property is a residential property, and
· The person is an owner of the residential property and is not an excluded owner.
Where applicable, the person will need to file the UHT return (form UHT-2900) by April 30 of the following year (for 2022 the UHT return must be filed by May1, 2023 – the Government of Canada extended the deadline for this first year of filing to October 31, 2023, without incurring any penalties for late filing or paying tax.
Failure to file the UHT return on time can result in a penalty equal to the greater of:
· $5,000 for individuals and$10,000 for corporations.
· 5% of the tax plus 3% per complete month that the return is late.
If the return is never filed, the CRA will be able to assess the owner of the residential property at any time in the future, as the UHT will not become statue-barred.
Information required to File your UHT Return
Information needed to file your UHT return include:
· Personal information
· Social Insurance Number (SIN), or Individual Tax Number (ITN), or Business Number (BN) with Underused Housing Tax (RU) program account identifier.
· Property address and type.
· Property ID (used in the land registration system or similar system).
· Property tax or assessment roll number (if applicable).
Where to File your UHT Return
You can file your return electronically, by mail, or by fax
· Electronically using My Account, My Business Account, or Represent a Client (for accountants or other authorized representatives).
· Mail – depending on where you reside, you can mail the return to Sudbury Tax Centre or Winnipeg Tax Centre
· Fax – Sudbury Tax Centre fax (705) 671-3994. Winnipeg Tax Centre fax(204) 984-5164
Where to Get More Information
How Can We Help
MMS Accounting can help you identify ownership situations that are subject to the UHT rules, we can also help with filing your UHT return with CRA.
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