By Stuart Wallace and Kim Walsh

On January 1, 2022, the Underused Housing Tax Act (the Act) took effect. The Underused Housing Tax (the UHT) is an annual 1% tax on the value of vacant or underused housing in Canada. This typically applies to non-resident, non-Canadian owners (but can apply to Canadians). Many not subject to the tax will still have filing obligations. Failure to file a return could result in tax or penalties becoming payable where they otherwise would not.

Obligation to File

The Act requires persons who own one or more residential properties in Canada on December 31, who are not an excluded owner, to file a return by April 30 of the following year. Returns must be filed for each residential property owned.^[1] The first returns, for property owned December 31, 2022, will become due April 30, 2023.

What is residential property?

Residential property includes a detached house or similar building, containing not more than three dwelling units; or a part of a building that is a semi-detached house, rowhouse unit, residential condominium unit, or other similar premises.

Who is an owner?

The owner for the purposes of the Act is the registered owner. This includes a life tenant under a life estate; a life lease holder; and a person under a long-term lease with continuous possession of the land on which the residential property is situated. Owner does not include the person who gives continuous possession of all of the land on which the residential property is situated to the life lease holder or to an individual in continuous possession.

Who are excluded owners?

Excluded owners are not required to file. Excluded owners include: citizens and permanent residents; publicly traded Canadian corporations; trustee of mutual fund trust, real estate investment trust, or SIFT trust; registered charity; cooperative housing corporation; hospital authority; municipality; school authority or university; or Indigenous groups.^[2]

Of note, non-public Canadian corporations are not excluded owners.

Obligation to Pay

Tax must be paid by April 30 of the following year.^[3] Not all those who are obligated to file a return have to pay the UHT. There are a number of applicable statutory exceptions.

Property based exceptions^[4]

Limited access: the property is not suitable for year-round use as a place of residence or is seasonally inaccessible because public access is not maintained year-round.

Disaster or hazardous condition: uninhabitable for a period of at least 60 consecutive days as a result of a disaster or hazardous condition caused by circumstances beyond the reasonable control of an owner.

Renovations: uninhabitable for a period of at least 120 consecutive days in the calendar year as a result of a renovation.

Under construction: construction of the residential property is not substantially completed before April of that calendar year.

Sale of new construction: where the construction of the residential property is substantially completed before April of the calendar year, and the residential property is offered for sale to the public during that calendar year and it had never been occupied by an individual as a place of residence or lodging during the calendar year.

Prescribed area: the property is located in a prescribed area.

Owner/Occupier based exceptions^[5]

Primary residence: Where the residence is the primary residence of the owner, their spouse or common law partner, or their (spouse or common-law partner’s) child for the purposes of attending school.^[6]

Specified Canadian corporation: owned by a Canadian corporation with less than 10% foreign ownership.

New ownership: the person becomes an owner of the residential property in the calendar year and was never an owner of the residential property in the previous nine calendar years.

Death of owner: exempt for the calendar year in which the owner died and the one after. This grace period extends to the personal representative of the deceased individual, and to a joint owner in which the deceased owned at least 25%.

Specified Canadian partnership or trust: the person is an owner of the residential property solely in their capacity as a specified Canadian partnership (each member is an excluded owner or a specified Canadian corporation) or trust (each beneficiary is an excluded owner or a specified Canadian corporation).

Qualifying occupancy: The property was occupied for at least 180 days in the calendar year, consisting of one or more periods of at least one month by: an arm’s length individual with a written rental agreement; a non-arm’s length individual paying fair rent; the owner’s spouse or common law partner pursuing authorized work under a work permit; or an individual who is a spouse, common-law partner, parent or child of the owner and who is a citizen or permanent resident.

Failure to File

Those required to file, who fail to do so by December 31 of the following year, will be limited in what exceptions to the obligation to pay they are entitled to.^[7] There can also be penalties assessed.

Objections to Assessments

Any person who objects to their assessment can file with the Minister a notice of objection within 90 days of receiving their notice of assessment.^[8] If the objection period has elapsed, an application can be made to the Minister, and they may extend this period.^[9] If this Minister rejects the extension, or 90 days after filing, a person may apply to the Tax Court of Canada to have the application granted.^[10]

Appeal of the Minister’s confirmation of assessment or reassessment can be made to the Tax Court of Canada.^[11]

Implications on Trustees and Receivers in Bankruptcy

This Act creates the obligations for the trustee and receiver in bankruptcy to file and remit the UHT on behalf of the bankrupt.

This update is intended for general information only. If you have any questions on the above we would invite you to contact the authors or any other member of our Tax Group.

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[1] Underused Housing Tax Act, s 7 [UHTA].
[2] UHTA, s 1.
[3] UHTA, s 6(6).
[4] UHTA, s 6(7).
[5] UHTA, s 6(7).
[6] UHTA, s 6(8).
[7] UHTA, s 47(2).
[8] UHTA, s 37(1).
[9] UHTA, s 38(1).
[10] UHTA, s 39(1).
[11] UHTA, s 40(1).