The Underused Housing Tax Act (UHTA) is law¹, and the first filing date is only months away.

The purpose of the UHTA

The UHTA was designed to tax residential properties that are considered vacant or underused and not owned by citizens or permanent residents of Canada. Beginning in 2022, this tax ⁠–⁠ referred to as the Underused Housing Tax (UHT) ⁠–⁠ is assessed at one per cent of the property’s assessed value (or most recent sale price) on an annual basis. This UHT is reportable and payable by April 30 of the following year, with the first payment occurring on April 30, 2023.

Excluded owners

The UHT applies to residential properties owned on Dec. 31 unless you are an excluded owner² or meet a specific enumerated exemption. The main group of excluded owners are individuals who are citizens or permanent residents of Canada. To meet the definition of excluded owner, members of this group require direct ownership of the residential property. If a citizen or permanent resident of Canada indirectly owns a residential property through a corporation, partnership or trust (in their role as trustee), they no longer meet the definition of excluded owner. These owners might have considered themselves outside the scope of the UHTA, and they may be exempt from a tax liability if they are considered a specified corporation³, partnership⁴ or trust⁵ ⁠–⁠ defined terms under the UHTA ⁠–⁠ but they remain subject to declaration requirements.

Declaration and penalties

An exemption is only claimable if a declaration is filed with the Canada Revenue Agency in prescribed form. The list of potential exemptions is extensive and a flowchart to help identify them is available here.

Failure to file an annual declaration under the UHTA by April 30 following the reporting year will result in penalties of (whichever is greater): $5,000 for individuals, $10,000 for others or five per cent of the calculated UHT plus an additional three per cent of the calculated UHT for each month that the declaration is late. If the declaration is still not filed by Dec. 31 following the reporting year, the portion of the penalty calculation based on the UHT could be calculated without the benefit of an exemption being claimed.

Failure to file the declaration also leaves the residential property owner subject to an assessment under the UHTA indefinitely.

The potential problem

Many Canadian citizens and permanent residents indirectly owning residential properties through a corporation, partnership or acting as a trustee may incorrectly assume they have no obligation under the UHTA. This assumption would be incorrect and could result in significant penalties. The due date of the declaration does not correlate with the normal tax filings for corporations, partnerships or trusts and can easily be missed.

Any non‑Canadians or persons indirectly owning a residential property⁶, as defined under the UHTA, should talk to their Baker Tilly advisor as soon as possible to ensure they meet their reporting obligation.

1. ¹ Bill C-8 received Royal Assent on June 9, 2022
2. ² Excluded owner, as defined in the UHTA, means a person who is on Dec. 31 of the calendar year: a Canadian citizen or permanent resident, unless an owner in their capacity as a trustee or partner; a public corporation listed on a Canadian stock exchange; an owner in their capacity as a trustee of a mutual fund trust, real estate investment trust or a SIFT trust; a registered charity; a cooperative housing corporation, a hospital authority, a municipality, a public college, a school authority or a university; 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; a prescribed person
3. ³ Specified Canadian Corporation ⁠–⁠ Incorporated or continued under the laws of Canada or a province other than a corporation that on Dec. 31:
   • Has the following persons with ownership or control, directly or indirectly, of shares representing 10 per cent or more of the votes or value under all or some circumstances:
     1. An individual who is neither a Canadian citizen nor permanent resident
     2. A corporation that is incorporated or continued otherwise than under the laws of Canada, or
     3. Any combination of (1) and (2)
   • Is without share capital having:
     1. A chairperson or other presiding officer who is neither a citizen nor a permanent resident, or
     2. 10 per cent or more of its directors who are neither citizens nor permanent residents
   • A prescribed corporation
4. ⁴ Specified Canadian Partnership ⁠–⁠ A prescribed partnership or a partnership, each member of which is, on Dec. 31, an excluded owner or a Specified Canadian Corporation
5. ⁵ Specified Canadian Trust ⁠–⁠ A prescribed trust or a trust under which each beneficiary having a beneficial interest in the residential property is, on Dec. 31, an excluded owner or a Specified Canadian Corporation
6. ⁶ Residential property ⁠–⁠ Property situated in Canada that is: a detached house or similar building containing not more than three dwelling units used as a place of residence for individuals; a part of a building that is a semi-detached house, rowhouse unit, residential condominium unit or other similar premises used as a place of residence for individuals; a prescribed property.