The Underused Housing Tax

(Please Note: This blog has been written for Canadian Citizens and Permanent Residents of Canada.)

The Underused Housing TaxWhat You Need to Know

If you own a residential property in Canada, you may be subject to the Underused Housing Tax (UHT). This annual 1% tax applies to the ownership of vacant or underused housing and came into effect on January 1, 2022. While the tax usually applies to non-resident, non-Canadian owners, there may still be a filing requirement for residents of Canada. Failure to file can result in significant penalties, even if no tax is owed.

The first question to ask yourself is whether you own, directly or indirectly, a residential property. A residential property is defined as a detached house containing no more than three dwelling units, including condos. If the answer is no, you may be off the hook. However, there can be some sneaky rules that could mean you do indirectly.  Keep reading! 

 

Exclusion from Filing? 

If you answered yes to the residential property question, the second question to ask yourself is whether you are excluded from filing the UHT return. The exclusion applies to Canadian citizens or permanent residents of Canada. However, if you own the residential property through a privately-held Canadian corporation (i.e. not a public company), you will need to file a form for all properties held through the company. You won’t owe any UHT tax, but filing the form will get you out of a $10,000 penalty!

There are a couple of sneaky instances in which you may not be excluded. For example, if you hold an interest in a residential property as a partner of a partnership or as a trustee of a trust, you will need to file a UHT return. Failure to file in these cases can result in a $5,000 penalty.

The UHT return is due by April 30th of each year and is based on circumstances relating to the previous calendar year. The form is not too complicated, and you can do it yourself.  If you prefer, your accountant can do it for you, but their fees might be excessive given the smaller amount of time it might take to fill out the form.

In summary, the UHT applies to the ownership of vacant or underused housing in Canada and is subject to significant penalties for failure to file. If you own a residential property, it’s essential to determine whether you need to file a UHT return and do so by April 30th.

Check out our video on The Underused Housing Tax

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