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Underused Housing Tax Filing

The Underused Housing Tax, commonly referred to as “UHT” (Underused Housing Tax), is a new tax introduced by the federal government. It’s worth noting that this tax is distinct from the Vacant Home Tax (VHT) implemented by the City of Toronto.

The tax year of 2022 marks the inaugural declaration of this tax, and it will be a recurring annual requirement thereafter. All declarations must be completed by April 30th of the following year.

Who is required to declare?

The Underused Housing Tax (UHT) is unique in Canada in that it focuses on “immigration status” rather than “tax status”:

Individuals must declare for the UHT for the year 2022 if they meet all of the following criteria:

  1. They are not Canadian citizens.
  2. They do not hold permanent resident status.
  3. They own residential property in Canada as of December 31st, 2022

The term “individuals” encompasses a broad range, including international students, work permit holders, visitors, relatives visiting, temporary residents, tourists, and refugees.

Additionally, if the property in Canada is owned by a Canadian Controlled Private Corporation (CCPC) or a foreign corporation, they are also required to declare under UHT. Moreover, if you own property under more unique circumstances, such as through a trust or partnership, it is advisable to consult official documentation to determine your declaration obligations.

The deadline for declaration is April 30th of each year. Late declarations are subject to significant penalties.

According to CRA regulations, only the following categories of property owners are exempted:

  1. Individuals with Canadian citizenship.
  2. Individuals with permanent resident status.
  3. Publicly traded companies in Canada.
  4. Charitable organizations.
  5. Coop housing companies, schools, hospitals, government agencies, and Indigenous institutions.

These are collectively referred to as “excluded owners”, who are not required to declare or pay the tax.

Apart from the excluded owners, all other individuals or entities fall under the category of “affected owners” and must declare UHT accordingly.

What is “residential property” under the UHT concept?

“Residential property” refers to dwellings typically used for daily living, such as detached houses, semi-detached houses, apartments, condo units, townhouses, and even coach houses, laneway houses, cottages, cabins, chalets, and other family residences. Their primary purpose is for habitation (non-commercial operation), and these types of structures are termed as “residential homes.”

In contrast, commercial properties (offices, shops) and industrial properties (warehouses, factories) are used for business operations and workspaces. They are not intended for living and are therefore not considered residential homes.

The definition of “residential home” under UHT is narrower than the general sense, excluding:

  • Residential homes with three or more independent units.
  • High-rise apartment buildings.
  • Buildings used more than 50% for retail or office purposes.
  • Cottages and cabins used for commercial operations, hotels, motels, Airbnb lodgings, which fall under commercial property.
  • Houseboats, mobile homes, travel trailers, RVs, and camping trailers. Only those that meet the “residential home” criteria are required to declare.

Corporate Ownership of Residential Property

According to the UHT official website, if you are one of the following companies and own “residential property” in Canada, you must declare UHT:

  • You are a company registered outside of Canada.
  • You are a privately-owned (unlisted) company registered in Canada. The well-known CCPC – Canadian Controlled Private Corporation is registered in Canada, privately owned (not publicly listed), and more than 50% of its shares are controlled by Canadian residents. Thus, CCPCs owning residential homes are also required to declare.

This applies whether the company is federally registered or registered at the provincial level.

How to Calculate UHT Tax When Declaring

If you do not meet the exemption criteria for UHT, the tax must be paid annually, amounting to 1% of the property’s assessed market value.

Where to find the property valuation?

  • Look for the “assessed value” on the 2022 property tax bill, or
  • The most recent sale price of the house. Then, take the higher value between (1) and (2), and multiply by 1% to determine the amount of UHT.

Another method is to hire an appraiser to provide a market valuation report, and then use the freshly assessed market price multiplied by 1%. However, if you choose this method, you must submit an “election” to the CRA before April 30th. It’s more complicated, and thus, not recommended.