The government introduced the Underused Housing Tax (UHT) in an effort to address the issue of underused housing in Canada. This tax is specifically targeted at residential properties owned directly or indirectly, either wholly or partly, by non-resident, non-Canadian individuals or entities. The UHT came into effect in 2022, and it places obligations on property owners in Canada as of December 31 of the relevant year.
The UHT rules encompass two key requirements: an annual reporting obligation and, for certain filers, a tax liability associated with the UHT. The tax is calculated by applying a 1 percent tax rate to the value of the residential property. It must be paid to the Canada Revenue Agency (CRA) by April 30 of the subsequent calendar year, coinciding with the deadline for filing the annual return.
The UHT rules classify owners of residential property into three broad groups:
These are owners who have no UHT reporting or tax obligations. Excluded owners include:
Individual Canadian citizens or permanent residents of Canada, except in cases where they are exempt in their capacity as a trustee or partner.
Publicly traded Canadian corporations.
Persons with property title in their capacity as a trustee of certain trusts, including mutual fund trusts, real estate investment trusts, or specified investment flow-through trusts (SIFTs).
Cooperative housing corporations.
Municipal organizations, public institutions, and government bodies.
Indigenous governing bodies or corporations.
“Prescribed persons” (as defined by regulation, which may evolve over time).
This category includes individuals who are not Canadian citizens or permanent residents and do not qualify for any exemptions. It also encompasses private corporations, including Canadian controlled private corporations (CCPCs), partnerships, and trusts (excluding estates) that own residential property in Canada and do not meet the criteria for exemption.
Affected Owners Exempt from Tax: These affected owners are still required to file the UHT return, but they are exempt from paying the tax. This subset of filers typically qualifies for one of the available exemptions.
Affected owners must assess whether they meet the criteria for any of the following exemptions to avoid the UHT tax liability:
Canadian Citizens and Permanent Residents: Individuals who are Canadian citizens or permanent residents of Canada, unless they qualify for an exemption in a different capacity, are generally exempt.
Publicly Traded Canadian Corporations: Publicly traded Canadian corporations are also exempt from the UHT.
Trustees of Certain Trusts: Persons with title to property in their capacity as trustees of specific trusts, including mutual fund trusts, real estate investment trusts, or SIFTs, are exempt.
Registered Charities: Registered charities are not subject to the UHT.
Cooperative Housing Corporations: Cooperative housing corporations enjoy an exemption under the UHT.
Municipal Organizations and Government Bodies: Municipal organizations, public institutions, and government bodies are exempt from the UHT.
Indigenous Governing Bodies: Indigenous governing bodies and corporations are exempt from the UHT.
It’s important to note that the landscape of UHT exemptions is subject to change, and new regulations may define additional “prescribed persons” who are exempt.
Navigating the UHT regulations and exemptions can be complex, and it’s crucial for affected property owners to fully understand their obligations. Seeking professional advice and guidance from tax experts can help ensure compliance with UHT requirements and, where applicable, help leverage available exemptions.
For more detailed information and personalized guidance on UHT and other tax-related matters, don’t hesitate to reach out to our experts. We’re here to assist you in making informed decisions and meeting your tax obligations.
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