Canada's Underused Housing Tax Act (UHT), implemented on January 1, 2022, has the aim of addressing the country-wide housing crisis. The UHT is a 1% annual levy on vacant or underutilized residential real estate owned by non-resident, non-Canadian individuals or entities. 

However, there are circumstances when this tax on vacant housing may also apply to Canadian citizens. Here is a quick summary of the key points related to the UHT. As usual, however, It is always prudent, however, to get advice on taxes and laws from licensed and reputable professionals for specific guidance regarding obligations and strategies.

Who is "Affected" by the UHT?

The UHT applies to taxpayers known as "affected owners." Affected owners include individuals who are:

• Not Canadian citizens or permanent residents
• Canadian citizens or permanent residents who own qualifying residential property as trustees of a trust (excluding personal representatives of deceased individuals).
• Individuals who own residential property as partners in a partnership (including Canadian citizens or permanent residents).
• Corporations incorporated outside of Canada.
• Canadian corporations whose shares are not listed on a designated Canadian stock exchange for income tax purposes.
• Canadian corporations without share capital.

Property Types Under the UHT's Jurisdiction

The UHT Act applies to prescribed properties, which include detached homes, duplexes, triplexes (with no more than three dwelling units), semi-detached houses, rowhouse units, residential condominiums, and other living spaces used as residences. A property is considered underused if it is occupied for less than 180 days in a year.

Common UHT Exemption Scenarios

Exemptions from the UHT are available based on various factors.

Ownership-based exemptions are available for specified Canadian corporations, partners in specified Canadian partnerships, trustees of specified Canadian trusts, new owners in the calendar year, deceased owners, co-owners, or personal representatives of deceased owners. 

Exemptions can also be granted based on the availability of the property (e.g., newly constructed, seasonally inaccessible, under renovation, or affected by a disaster), its location (e.g., eligible vacation properties used for at least 28 days by the owner or their spouse or common-law partner), or its occupancy (e.g., primary residence or residence for a child attending a designated learning institution).

Calculating Canada's Underused Housing Tax Amounts

To calculate their UHT obligations, affected owners must multiply the value of the prescribed property by the 1% tax rate and then multiply that result by their ownership percentage. The value of the property can be determined using either its:

• Taxable value or 
• Its fair market value, provided an election is filed with the Canada Revenue Agency (CRA) and an appraisal by an accredited, independent real estate appraiser is obtained specifically for UHT payment purposes.

Requirement for Paying UHT Obligations

Affected owners must file an Underused Housing Tax return for the calendar year, even if they qualify for an exemption and do not owe any tax. Returns can be filed electronically or by mail. The deadline for filing the return and paying any UHT owing is April 30 of the following calendar year. Failure to file on time can result in penalties, with a minimum penalty of $5,000 for individuals and $10,000 for corporations.