9 FAQ about the new UHT on Canada
Mariano Gutierrez Mejia
Especialista en Marketing, Digital & Social Media | Creación de Contenido | Publicidad | Coaching | Emprendedor | Administración y Contabilidad | Líder en Generación de Ingresos | Pensador Estratégico.
Canada has been facing a growing housing crisis recently, with skyrocketing prices, limited supply, and increasing homelessness.?
To tackle this issue, the Canadian government has introduced various measures, including the Underutilized Housing Tax (UHT), set to effect in 2023.?
The UHT is a new tax to encourage property owners to use their residential properties better or face penalties.?
In this blog post, I will give you some essential details about the UHT, its potential impact on the housing market, and whether it is an effective solution to Canada's housing crisis.
I am writing to inform you about a new tax in Canada that will come into effect in 2023, "the Underused House Tax."?
As you may be aware, the Underused House Tax is a new tax on residential properties not used as primary residences or left vacant for extended periods that took effect on January 1, 2022; this tax applies to Non-Residents and Non-Canadian owners.
The Underused House Tax is a tax on residential properties in Canada that are not being used as primary residences or are left vacant for extended periods.?
This tax encourages homeowners to make their properties available for rent or sale, thus increasing the housing supply in areas with high demand.
The tax will be calculated based on the property's assessed value and will be one percent.?
I recommend that those who own residential properties in Canada review their property use and ensure they follow this new tax.?
It would be best to comply with the Underused House Tax to avoid penalties and interest charges.?
The CRA continues to provide updates and technical information on the UHT.?
Stay up-to-date and access CRA support here.
Next, you can find the nine most frequently asked questions, which will clarify these New Canadian Taxes.
Thank you for your attention to this matter.
Mariano Gutierrez Mejia
Frequently Asked Questions
1.- What is the UHT?
The Underused Housing Tax is an annual tax on the ownership of vacant or underused housing in Canada that took effect on January 1, 2022, and was enacted on June 9, 2022.
The Underused Housing Tax (UHT) is a federal tax applied to vacant or underused housing in Canada.
The Act applies an annual underused housing tax ("UHT") of 1% of the "taxable value" of the property unless the owner is an "excluded owner" or the owner is eligible to claim a specific exemption.
The UHT generally only applies to non-resident, non-Canadian owners.
2.- What's happened if I don't pay the UHT this 2023?
Unpaid property taxes become delinquent after 31 December 2023, and collection action will begin.
Unpaid or overdue property taxes NO longer directly impact your credit.
Residential property owners will be required to file their first annual underused housing tax (UHT) information return for 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.
3.- Who is an Owner?
You will be considered an owner for the UHT if any of the following apply:
You are identified as an owner of the property in the land registration system where the property is located.
You are considered an owner of the property based on such a land registration system.
You are a life tenant under a life estate in the property.
You are a life leaseholder of the property.
You are a lessee with continuous possession of the land under a long-term lease on which the property is situated.
You are not considered an owner of a residential property if you give continuous possession of the land on which the property is situated to either of the following:
A life leaseholder of the property
A lessee under a long-term lease
4.- Who must fill my UHT-2900, Underused Housing Tax Return and Election Form?
A Form UHT-2900 (Underused Housing Tax Return and Election Form) needs to be filed for each of your properties when all the following conditions are met on December 31 of a calendar year:
The property is residential.
You are an owner of the residential property.
You are not an excluded owner of the residential property.
Residential property is defined as property that is either of the following:
A detached house or similar building contains no more than three dwelling units, any appurtenances and the related land.
A semi-detached house, rowhouse unit, residential condominium unit or other similar premises, along with any common areas, appurtenances, and the related land.
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5.- Excluded owner (good)
Being an "excluded owner" is good since the owner has no obligation or liability under the Act and would not be required to file a return with the CRA. An excluded owner includes:
An individual who is a Canadian citizen or permanent resident of Canada unless they hold ownership in trust as trustee or as a partner in a partnership. A Canadian resident executor of an estate is not considered a trustee for purposes of this rule and would qualify as an excluded owner.
Any person with title to a residential property as a trustee of a mutual fund trust, real estate investment trust, or specified investment flow-through trust (SIFT) for Canadian income tax purposes.
Publicly traded Canadian corporations
A registered charity for Canadian income tax purposes
A cooperative housing corporation for Canadian GST/HST purposes
An Indigenous governing body or a corporation wholly owned by an Indigenous governing body.
Just to let you know, the excluded owner does not include persons holding titles as trustees or private corporations, such as Canadian Controlled Private Corporations (CCPCs).
6.- Affected owner (bad)
Taxpayers that do not meet the "excluded owner" definition are called "affected owners" in the CRA publications. All "affected owners" must file a UHT return. An affected owner includes, but is not limited to:
An individual who is not a Canadian citizen or permanent resident
Individual Canadian citizens or permanent residents of Canada with title to residential property as a trustee of a trust (other than as a personal representative of a deceased individual)
Any person – including an individual who is a Canadian citizen or permanent resident – that owns a residential property as a partner of a partnership.
A corporation that is incorporated outside Canada.
Canadian corporations that are not publicly traded (i.e., private corporations and CCPCs)
Canadian corporations without share capital.
7.- Exemptions
Affected owners must file UHT returns to claim an available exemption.
Primary residence exemption – an owner will be exempt if a dwelling unit that is part of the property is the primary residence for the individual, their spouse/common-law partner or their child attending a designated learning institution.?
Qualifying occupancy – to qualify for this exemption, the property must be occupied, in periods of at least one month, for at least 180 days during the calendar year by a "qualifying occupant" about the owner, which includes:
An arm's length tenant (i.e., non-related tenant) who leases the property under a written lease agreement; or
A non-arm's length tenant (i.e., related tenant) who leases the property under a written lease agreement and pays "fair rent" (i.e., 5% of the value for the year)
The individual owner of the property or their spouse/common-law partner, provided they are in Canada to pursue work under a Canadian work permit and occupy the property for that reason; or
Spouse/common-law partner, parent or child of the owner who is a Canadian citizen or permanent resident.?
A "qualifying occupancy period" for a property does not count if the owner, their spouse/common-law partner, or child resides at another residential property for the same time or more than they would live at the original property.?
Furthermore, if an owner and their spouse or common-law partner own multiple residential properties, a joint election is required to elect one property for the exemption.?
The joint election must be filed by April 30th with the UHT return. If no election is made, the exemption will not be available on any properties owned.
Corporate, Partnership and Trust Exemptions – Appendix B has detailed definitions of "specified" Canadian corporations, trusts and partnerships exempt from the UHT but still required to file a return to claim the relevant exemption.?
It is important to note that any residential properties owned by corporations, trusts and partnerships with shareholders, beneficiaries and partners that are Canadian citizens will likely be exempt from tax but must file to avoid penalties.
8.- How is UHT Calculated?
The UHT is determined using the following formula.
[1% of property value] X [person's ownership %]
The value of a residential property can be determined using one of two methods:
1. Taxable Value
The greater of:
a. The assessed tax value for the year under the related property tax assessment
b. The most recent sale price on or before December 31 of the calendar year
2. Fair Market Value
Fair market value can only be used if the owner files an election to use this method for the property (the election is included on Form UHT-2900). The owner must obtain an appraisal of the property by an accredited, arm's length real estate appraiser.
9.- About Trusts holding residential property
Trusts can be set up to hold residential property. For residential property held in trust, the trustee is generally the affected owner who must file the annual UHT return (trustees of mutual fund trusts, real estate investment trusts or SIFTs are excepted from this rule).?
Additionally, unless the trust is a specified Canadian trust (i.e., all the beneficiaries are excluded owners), the property may be subject to the UHT.?
The UHT legislation assumes that the trustees legally own the property, so they – and not the trust – must file the return and pay any taxes.?
While this aligns with the CRA's processes for filing UHT returns and remitting the taxes, it must align with how T3 tax returns are filed.?
Non-resident owners who receive rental income from residential property in Canada are affected owners who will have to file the UHT return and potentially pay UHT (depending on whether they qualify for an exemption).
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