As the 2022 filing deadline is quickly approaching, property owners should evaluate whether or not they must file a return under the Underused Housing Tax Act.
Canadian residential property owners whose land is held in the name of a family trust, private company, or partnership may be required to file an unexpected tax return.
On January 1, 2022, Canada’s Underused Housing Tax (the “UHT”) came into effect under the federal Underused Housing Tax Act. The UHT is a new, annual tax, payable by certain property owners on or before April 30 of the following calendar year. Accordingly, the filing deadline for 2022 is quickly approaching, and many property owners may need to file a return – even if no tax will be payable.
The tax payable under the UHT is calculated at 1% of the residential property’s value, multiplied by the ownership interest the taxpayer has in the property.
The types of residential properties targeted by the UHT are vacant or underused properties owned by non-Canadians or non-residents. However, these aren’t the only types of owners required to file an annual return.
Who doesn’t need to file?
Anyone who is considered an “excluded owner” does not need to file a return. Individual Canadian citizens or permanent residents who own the property in their own names are considered to be excluded owners.
Also excluded are publicly traded Canadian corporations, registered charities, certain trusts (such as mutual fund trusts and real estate investment trusts), municipalities, universities, and Indigenous governing bodies.
Who needs to file a return?
If residential property is owned by anyone other than an excluded owner, a return must be filed in Form UHT-2900 regardless of whether or not the property is “underused”.
The list of owners who need to file a return includes (but is not limited to):
- Individuals who are not Canadian citizens or permanent residents;
- Individuals who own residential property as the trustee of a trust;
- Private companies;
- Corporations incorporated outside Canada;
There are penalties for failing to file if you have a filing obligation. Individuals who fail to file on time face a minimum penalty of $5,000, while companies are subject to a minimum penalty of $10,000.
Who needs to pay?
While all of the persons listed in the above section are required to file a return, not everyone will actually need to pay the UHT. There are a number of exemptions that may apply to a particular owner or property.
“Specified Canadian corporations,” meaning Canadian corporations where fewer than 10% of the voting shares and equity value are owned by non-Canadians, do not need to pay the UHT.
An individual who owns residential property as the trustee of a trust will not need to pay the UHT if the trust is a “specified Canadian trust”. This refers to a trust under which each beneficiary having a beneficial interest in the residential property is an excluded owner or a specified Canadian corporation.
The UHT is also not payable by anyone who owns property as the partner of a “specified Canadian partnership”, in which each member is an excluded owner or a specified Canadian corporation.
Other situations in which the UHT is not payable include:
- where the property is the primary residence of the individual owner (or their spouse, common-law partner, or their child while such child is a student);
- where the property is not suitable for year-round use as a place of residence;
- if the property is a new build, where construction is not substantially completed before April of the particular year;
- where the owner acquired the property in the year, so long as the owner did not own the property in the previous nine calendar years;
- where the property is occupied for at least 180 days of the year by an arm’s length individual under a lease (or a non-arm’s length individual under a lease if they pay a fair market rate of rent); and
- where the property is located in an area specified by regulation.
Other exemptions are also available in certain cases under the Underused Housing Tax Act.
Looking for guidance?
If you are not certain whether you need to file a UHT return, whether you will need to pay, or if you have any other questions related to the UHT, our team of tax lawyers would be happy to help.
David Collins is an Associate with our Business Law Team, practicing primarily in the areas of Business Operations, Commercial Transactions, and Corporate Governance. To reach David directly, please call (902) 460-3453 or email him at dcollins@boyneclarke.ca