Starting on January 1, 2022, the Underused Housing Tax Act (UHT Act) came into effect in Canada. This act applies to certain non-Canadian and Canadian homeowners with residential properties located in Canada. These owners may be required to pay a 1% tax on their property value if the home is not being occupied, rented, or otherwise left unused to its maximum potential. The purpose of this tax is to discourage property owners from leaving their properties unoccupied and to encourage them to make use of these properties in ways that contribute to the overall economy. It is important to note, this legislation requires some Canadians who are not subject to the tax to file a return.
The UHT Act is aimed at combating the shortage of housing in Canada’s major cities. Meaning, generally this is good news for Canadians looking for affordable housing, as it will open up more properties to the rental market. With that being said, it’s important for property owners to understand the implications of the new tax on and how to comply with it. Those who fail to comply with the UHT Act by April 30, 2023, may be subject to fines, penalties, and other consequences.
Affected Properties
This tax affects detached houses or similar buildings containing up to three dwelling units, semi-detached houses, rowhouse units, residential condominium units and other similar premises, as well as any accessories and related land.
Non-Canadians:
For non-Canadian owners of residential property, the UHT Act requires them to file an annual return by April 30 of each year, detailing their ownership and liability to pay the UHT. They must also provide details on their citizenship, property’s value, the amount of UHT due, the location of the property and the date of acquisition.
Canadians:
For Canadian owners of residential property, the UHT Act applies to those who own property that is not their principal residence, or is underutilized. These owners must also file an annual return by April 30 of each year, detailing their ownership and liability to pay the UHT. The value of the property, the amount of UHT due and the date of acquisition must also be provided.
Who Should File
It is important to note, even if they are not subject to the tax, you still may need to file a return. In particular, those who are exempt from the tax are required to file a return or face penalties. Not only can this lead to monetary penalties, but it can also result in the loss of exemption status, meaning that you would be required to file a return in future years. An experienced bookkeeper and accountant can help advise you on the best course of action for your unique circumstances.
How to Calculate tax:
The amount of the tax is 1% of the taxable value of the property, which is usually the assessed value (for local property taxation) or the most recent sale price. If a property owner wants, they can also use the fair market value of the property (based on an appraisal) to calculate the UHT. The UHT is due on April 30 of the year after it is calculated.
Exemptions:
Fortunately, the UHT Act does provide certain exemptions for those who may be eligible. These exemptions are based on:
- What kind of owner you are.
- An individual who is A specified Canadian corporation, partner of a specified Canadian partnership, trustee of a specified Canadian trust, new owner in the calendar year, or a deceased owner’s co-owner or personal representative may be exempt.
- The availability of the residential property.
- If your home is newly constructed, not suitable to be lived in year-round, seasonally inaccessible, uninhabitable for a certain number of days because of a disaster or hazardous conditions or renovations, you may be eligible for an exemption.
- Where the residential property is located and what it is used for.
- If your property is a vacation home that is located in an eligible area of Canada and it has been used by you or common-law or spouse for a minimum of 28 days in the calendar year, you may be eligible for an exemption.
- Who occupies the residential property.
- If either you, your spouse or common-law partner, or your child (who is attending a designated learning institution) reside in the property as their primary residence for at least 180 days throughout the year, then you may qualify for an exemption.
Penalties and Fines:
It’s important to keep in mind that if you fail to comply with the UHT Act by April 30, 2023, you could be subject to fines, penalties and other consequences. The fines will be the greater of the two, either a $5,000 fine for an individual or a $10,000 fine for a corporation, even if no taxes are due or second amount is a combination of two parts – 5% of the tax calculated under section 6, plus 3% of the tax calculated under section 6 multiplied by the number of months since the return was due.
How to Stay Compliant:
It is important for all residential property owners to stay up-to-date with the latest on the UHT Act and to familiarize themselves with what is required of them to remain compliant. A great way to make sure you are remaining compliant is to consult a qualified bookkeeper or accountant who will make sure you are filing correctly and are in compliance with all the requirements that apply to you. It is also important to keep detailed records of all transactions related to your residential property, including all documents related to ownership and occupancy of the property, in case of a future audit.
LedgersOnline Can Help
If you’re looking for help understanding and complying with the Underused Housing Tax Act, our team at LedgersOnline is here to help. We can make sure you understand all the implications and take advantage of any exemptions you may be eligible for. The UHT Act is an effective way to tackle the housing shortage in Canada and it can benefit everyone in the long run. Let us help you make the most of it.
