Over the year, a number of new taxes impacting owners of real property in Canada have come into effect. The Underused Housing Tax, Vacant Home Tax, and Vacant Unit Tax are three examples of these new “vacancy” taxes intended to disincentivize holding properties that are not being lived in or rented out.
What is the Underused Housing Tax?
The Underused Housing Tax (UHT) is a new federal tax starting in 2022. The UHT is a one per cent tax payable by certain holders of Canadian real estate and calculated on the market value of the property. The tax will apply beginning January 1, 2022, with the first UHT returns being due on April 30, 2023.
Why is it important to be aware of the UHT?
The UHT is intended to target foreign owners of Canadian real estate who are not making productive use of the property. Despite the intended target, the UHT can have significant implications for property holders within Canada.
Although most property owners located in Canada will not be required to pay the tax, many will still be required to file returns. In many situations, a return must be filed to claim an exemption from the tax.
If an individual is required to file a UHT return and fails to do so, they are subject to a minimum penalty of $5,000 and may lose access to exemptions that would otherwise apply to eliminate the tax owing. If the non-compliant owner is not an individual, the minimum penalty is $10,000, however, there is no impact on certain exemptions available to the entity. A separate return is required for each residential property, with penalties assessed on each return.
Which properties does the UHT apply to?
Properties to which the UHT can apply are referred to as “residential properties”.
A residential property is any house or similar building with no more than three dwelling units and any portion of a building that is intended to be owned apart from any other unit in the building.
For example, owners of detached and semi-detached houses, duplexes, triplexes, or condominium units may need to file a UHT return and pay the tax.
Traditional apartment buildings are not subject to UHT, as the units (apartments) are not intended to be owned apart from other units in the building.
