Underused Housing Tax (UHT) For Foreign Owners Of Canadian Real Estate

Bill C-8, Economic and Fiscal Update Implementation Act, 2021, which included provisions for Underused Housing Tax (UHT), received Royal Assent in June 2022. Under the provisions of the Act, the Government intends to impose a 1% annual tax on the fair market value of a residential property, or 1% of its most recent sale price whichever is greater. For example, if you purchased a home in 2018 for $1,700,000 and it current fair market value is $2,000,000, you will be required to pay $20,000 in taxes.

The UHT will be imposed on underused residential properties owned as of December 31 of the calendar year, directly or indirectly, wholly or partially, by non-resident, non-Canadians. The owner, being the person registered on the title of the property, will be liable for the UHT in proportion to their interest in the property. Canadian citizens and permanent residents are “excluded owners” for the purposes of the Act.

Residential property is defined as detached or semi-detached homes, row-house units, residential condominiums, duplexes, triplexes, or any other property designated as “residential property” under provincial or local zoning laws.

Excluded owners for the purposes of the Act are:

Canadian citizens and permanent residents

Publicly listed corporations listed on a Canadian stock exchange

Registered charities

Cooperative housing corporations

Indigenous governing body or a corporation owned by the governing body

Municipalities

Government of Canada or an agent appointed by the Government

Provincial governments or an agent appointed by provincial governments

Public service bodies such as hospitals, public schools and colleges

Canadian corporations that are not publicly listed on a Canadian exchange, Canadian trusts, and partnerships are NOT considered “excluded owners” and are subject to the provisions of the Act.

Owners other than “excluded owners” are required to file an annual declaration with the Canada Revenue Agency (CRA) before April 30th of the following year. For example the UHT annual returns for calendar year 2022 are required to be filed on or before April 30, 2023. Certain owners may require to pre-register with the CRA prior to filing a declaration.

An owner is required to report the following information in their declaration:

The calendar year of the declaration

Legal name of the owner

Contact information of the owner

Type of owner (Individual, partnership, corporation, etc)

Civic address and other property-related information

Percentage interest in the property

In certain circumstances, owners who are not “excluded owners” are exempt from the provisions of the Act if the property:

was rented under a written agreement for a period of six (6) months or more to an arm's length renter

is used by the owner for the period of at least one-month while the individual is in Canada for work

is used by spouse or children of owner as their principal residence

is owned by a corporation where at least 90% of the share capital is owned by Canadian citizens or permanent residents

is owned by a specified Canadian partnership where every member is an “excluded owner”

is owned by a specified Canadian trust where every person with beneficial interest is an “excluded owner”

was not inhabitable for a period of at least sixty (60) days during the calendar year due to a disaster or hazardous conditions

is not suitable for year-round use and is inhabitable or inaccessible for a portion of the year due to weather

is undergoing major renovations and it is inhabitable for at least 4 months (120 days)

is vacant due to the death of the owner

is newly constructed and the property was not substantially completed before April 1st of the calendar year

There are severe penalties for non-compliance. If the owner fails to file the declaration on April 30th of the following calendar year, the owner will be liable for a penalty equal to greater of the following amounts even if no UHT is owing:

$5,000 if the owner is an individual, or $10,000 if not an individual

The total amount of: 5% of the UHT applicable in respect of the owner’s interest in the property for the calendar year, and 3% of the UHT applicable in respect of the owner’s interest in the property for the calendar year for each calendar month the declaration is past due.

As at the date of this publication, the CRA has not posted any detailed information regarding filing requirements such as forms and instructional guidelines.