24 April, 2023
The Underused Housing Tax Act (“UHTA”) is here, and homeowners in Canada need to be aware of their obligations under this new legislation. Many individuals will not have to pay any tax or file a UHTA Return, while many others will have to file a UHTA Return and may also be able to claim an exemption from tax. However, the costs of missing a filing deadline, or not filing a return, can be very costly, even if no tax was payable.
If the owner of residential property, defined as a property with 1 to 3 dwelling units, in Canada, falls into one of the below categories, that owner is an “excluded owner” and not required to pay tax or file a UHTA Return:
- Canadian citizens and permanent residents;
- Registered charities;
- Housing co-ops;
- Hospitals;
- Municipalities;
- Educational institutions;
- Publicly traded corporations.
If the owner is one of the following, it is considered an “affected owner” and must file a UHTA Return but will be able to claim an exemption from tax:
- A Canadian private corporation where 90% of the voting securities and equity are held by Canadians or other Canadian private corporations;
- A partnership where all partners are Canadian citizens, permanent residents or private Canadian corporations;
- A trust where all beneficiaries are Canadian citizens, permanent residents or private Canadian corporations.
If the owner is an affected owner but does not meet one of the criteria above, the owner may still be exempt if the property can be classified as one of the following:
- The property can’t be accessed or lived in year-round;
- The property is uninhabitable for 60 days in a calendar year due to a disaster or hazardous condition caused by circumstances beyond the control of the owner;
- The property is uninhabitable for 120 days in a calendar year due to renovations;
- The property is owned by someone who hasn’t owned a property that calendar year or the previous nine calendar years;
- The property is held by a personal representative of a deceased individual who died during the calendar year or the prior calendar year;
- The property is held by someone who co-owned residential property with an individual who died during the calendar year or the prior calendar year;
- The property is not complete prior to April of the calendar year, or it was completed prior to April but was available for purchase by the public and has not been occupied;
- The property is occupied for at least 180 days of the year by someone who is arm’s length from the owner or paying fair market rent;
- The property is located outside a Census Metropolitan Area (areas with 100K or more people) and outside a Specified Census Agglomeration (in Ontario, this means Sarnia, Sault Ste. Marie and North Bay);
The following people/entities will have to pay tax under the UHTA:
- Foreign nationals that own residential property that is unoccupied;
- Foreign corporations that own residential property that is unoccupied.
The UHTA contains so many exclusions and exemptions that it is difficult to foresee perhaps more than a couple thousand entities having to pay the tax. Given the narrow definition of residential property, foreign property developers will still be able to build multi-unit housing so long as it contains four or more units. Canadian citizens, permanent residents and the vast majority of Canadian private corporations will not have to pay any tax, though the corporations will have filing obligations. For many, the UHTA will create paperwork more than anything.
This blog post is meant as a brief overview of the Underused Housing Tax Act. If you have further questions, or think the UHTA may apply to you, reach out to a lawyer in Harrison Pensa’s Business Law Group.
