Canadian citizens and residents should be aware of the Underused Housing Tax (UHT) and its implications. Here’s a concise breakdown of what you need to know about this tax and its implications for Canadian citizens and residents.
1. What is the UHT?
The UHT, introduced in the 2021 federal budget, is a 1% annual tax levied on non-resident, non-Canadian-owned residential real estate deemed vacant or underused. While aimed primarily at non-residents, certain circumstances may require Canadians to file a return and claim an exemption.
2. UHT Categories:
Residential property owners fall into three groups:
- Owners with no UHT reporting or tax obligation.
- Owners required to file a UHT return and pay tax.
- Owners needed to file a return but with no tax payable due to an exemption.
3. Who are Excluded Owners?
Excluded owners, who have no UHT filing requirement, include:
- Individual Canadians own property directly.
- Publicly traded Canadian corporations.
- Certain trusts (mutual fund trusts, real estate investment trusts, specified investment flow-through trusts, or executor-controlled estates).
- Registered charities.
- Cooperative housing corporations.
- Municipal organizations, public institutions, and government bodies.
- Indigenous governing bodies or corporations.
- “Prescribed persons” (not yet defined by regulation).
4. UHT Applicability:
Non-residents owning vacant or underused residential property may owe tax under the UHT. However, UHT rules can also affect Canadians holding property in other ways than direct ownership, potentially resulting in a $5,000 or higher penalty for not filing a return.
5. UHT Exemptions:
Different ownership scenarios have varying exemptions. A return is required for indirect ownership involving a corporation, trust, or partnership with Canadian ownership, and exemptions for specified Canadian corporations, trusts, or partnerships may apply (in Part 6 of the UHT form).
Non-resident owners must file a UHT return and either qualify for an exemption or be subject to the tax. Exemptions for non-residents include:
- The residential property is the primary residence of the owner, their spouse/partner, or a child studying at an educational institution for the year.
- Exemptions based on availability, location, or use of the residential property.
Conclusion
Canadian citizens and residents should familiarize themselves with the UHT rules to ensure compliance and avoid penalties. While the tax targets non-residents, certain situations may require Canadians to file a return and claim an exemption.
