UHT – UNDERUSED HOUSING TAX – Does it affect you?

Vacancy taxes are all the rage these days. To combat Canada’s housing crisis, several of Canada’s largest cities have put vacancy taxes in place. Vancouver has its Empty Homes Tax, Toronto has its Vacant Home Tax, and Ottawa has its Vacant Unit Tax. The province of British Columbia also has its own Speculation and Vacancy Tax.

Now the federal government of Canada is trying its hand at a vacancy tax. The “Underused Housing Tax,” or UHT, is designed to impose a 1% annual tax on the value of residential properties in Canada that are both “foreign-owned” and “underused.” Despite its purportedly limited scope, the UHT has serious implications for the unwary, even when there is no tax payable!

The federal Underused Housing Tax Act (UHTA) became effective January 1, 2022. As a result, a significant number of Canadian residential property owners will be required to file their first annual underused housing tax (UHT) information return in respect of their property by May 1, 2023, or face minimum penalties of $5,000 for individuals or $10,000 for corporations – even if no tax is payable.

An excluded owner is described as:

• an individual who is a Canadian citizen or a permanent resident of Canada, except for an individual who holds an interest in property:
  • as a partner of a partnership, or
  • as a trustee of a trust, but not including a personal representative of a deceased individual
• a corporation incorporated in Canada whose shares are listed on a Canadian stock exchange
• a person that is an owner of the residential property in their capacity as a trustee of a mutual fund trust, a REIT or a SIFT trust
• a registered charity or a cooperative housing corporation
• the Canadian, provincial or territorial governments, or their agents, a municipality, an Indigenous governing body and certain other public service bodies
• a prescribed person (not yet defined)

Specifically, bare trusts, spousal or residential trusts, partners of partnerships, private Canadian corporations, and other affected owners that own residential property on December 31, 2022 are required to file a UHT information return before 1 May 2023 to avoid any filing penalties. UHT returns will be due on or before April 30th of each year going forward.

Filing the UHT return

Even if there is no UHTax owing, a UHT return is required to be filed in respect of a residential property owned by an affected owner (“affected”, meaning that the owner is not an excluded owner for the year). The UHT information return requires the following information, irrespective of whether an exemption applies:

• owner’s legal name and type of owner
• owner’s social insurance number, individual tax number or business number (note that corporations must register for an “RU” number for the purposes of this return)
• property address
• property identification used in the land registration system
• property tax or assessment roll number (if applicable)
• residential property type
• year the person became an owner of the property
• owner’s percentage interest in the property and, if it is less than 100%, the form of ownership and names of other owners with a 10% or greater ownership percentage
• assessed value of the property
• most recent sale price of the property on or before December 31

If an exemption from the tax applies, that exemption must be identified on the return.

Form UHT 2900

The form is nine pages long and requires a significant amount of information even when one is claiming an exemption. This is very unlike the comparatively simple filing requirements found in many of the other vacancy taxes we have seen in Canada. Each affected owner must file a separate form for each property. Many affected owners will require accountants or lawyers to prepare their forms for them.

The federal government introduced the UHT with the stated aim of helping to address the housing crisis in Canada and make home ownership more affordable for Canadian citizens and permanent residents. However, the UHTA results in many residential property owners in Canada, including many corporations, trustees and certain partners, being subject to mandatory annual reporting requirements, even if they are exempt from paying the UHT. Owners of residential properties, and especially those that will have reporting requirements, should be aware of the UHT framework and how it may impact them.