Underused Housing Tax Act

| Categories: Canada , Property Investing , Tax

Blog by Fuel Accountants

 

Oh Great, Another New Tax to pay??

Underused Housing Tax Act (UHTA)

Canadian Bill C-8, which proposes the Underused Housing Tax Act (UHTA), was introduced in December 2021 and received royal assent in June 2022.  

What is it?

It applies an annual 1% tax on certain underused residential property in Canada.  While targeting wealthy foreign investors or future immigrants buying up property and leaving it empty, it has, as usual, created a world of pain for the rest of us as well. There are two parts of the Act: reporting and tax.  And they do not have the same rules.  You may have a reporting obligation, but owe no tax.  And given that penalties for non-reporting START at $5,000 per reporting period, mistakes can be expensive!

This is DIFFERENT from Toronto’s Vacant Home Tax where all Toronto residential property owners must submit a declaration of their property’s 2022 occupancy status by 2 Feb 2023.

Do I have to pay for this stupid thing?

The two main excluded owners are Canadian citizens/Permanent Residents (owning as an individual; but not if you own as a partnership, corporation or trust) and holders of property through Mutual Funds, REITs or SIFTs.  There are a few other exemptions but these don’t apply to the average person!

Basically, if your property holding is joint and in the nature of a trade or business (rental properties likely meet this definition), then you would be required to file a return.  The good news is that your family home would not meet this definition so can be ignored.

The following people owning Canadian residential property MUST file an annual UHTA report, even if there is no tax payable:

  • Non-Canadian Citizen/Permanent Resident
  • Partners and Trustees (every individual Partner/Trustee must file one report for each property)
  • Private Canadian Corporations
  • Foreign Corporations

Am I a Partnership?

One of the tricky situations is people who hold properly jointly.  If you are a couple and are both on title for your matirmonial home (and both citizens) then you should be fine.  But if you are non-citizens, or this is an investment property then you may be considered a partnership and a return is necessary.  As a general guide look at how you filed your rental income on your tax return.  If you filed it as joint owners then you are likely OK, but if you filed as a formal partnership then you should still file the UHT return.

What reporting is required?

If you are not an excluded owner then you MUST file a report by April 30 each year (for 2022 the deadline has been extended to 31 October 2023).  You must file a report even if your property is exempt from UHT or if no UHT is payable. A return must be filed by each eligible owner for each property.  Penalties of AT LEAST $5,000 apply to each unfiled report, and repeat each year if filings are not made.

Corporations will need to create an Underused Housing Tax account number (RU) using the Business Registration Online tool first. Corporations can file from within their My Business login (and accountants through Represent a Client), but individuals must file on paper or through the special online form.

But wait, that’s not all: Calculating the Tax Payable

If the property meets one of these exemptions then you simply file the form and no tax is payable.If you do not meet one of these exemptions then the form will help you calculate the tax owing which is 1% of the value of the residential property (multiplied by your ownership percentage of the property).

How to get some help:

If you’re a Fuel Accountants client then we will automatically complete these forms for you. If you’d like to become a client, give a call…

You can read more about this on the CRA UHTA page.

Need more advice?