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Does Canada’s Underused Housing Tax Apply to You?

The Underused Housing Tax (UHT), a 1% yearly levy on the possession of vacant or underutilized real estate in Canada, is intended to target non-resident, non-Canadians who own residential property in Canada that are essentially vacant at a time when the country as a whole is experiencing a housing shortage. It is one of the initiatives being implemented to address our lack of available housing.

However, there may be times when this tax on underused housing affects Canadian nationals.

Who is Required to Pay the UHT?

The CRA refers to everyone who is required to pay the UHT as an “affected owner.” The definition of an affected owner is someone who, on December 31 of a calendar year, owns a prescribed property and:

  • Is not a Canadian citizen or permanent resident.
  • Is a Canadian citizen or permanent resident who owns a qualifying residential property as a trustee of a trust (exclusive of personal representatives of deceased individuals.)
  • Are people, including individuals who are Canadian citizens or permanent residents, that own a residential property as a partner in a partnership.
  • Is a corporation that is incorporated outside of Canada.
  • Is a Canadian corporation whose shares are not listed on a Canadian stock exchange designated for Canadian income tax purposes.
  • Is a Canadian corporation without share capital.

Just as people subject to the UHT are classified as “affected owners,” “prescribed properties” are those the CRA deems as vacant or underused and require their owners (if they meet the definition of an affected owner) to pay the Underused Housing Tax.

Underused Housing Tax Exemptions

The Urban Housing Tax (UHT) has exemptions based on various factors. Ownership-based exemptions apply to specified Canadian corporations, partners in Canadian partnerships or trustees of Canadian trusts, new owners in the calendar year, deceased owners, or co-owners and personal representatives of deceased owners.

Exemptions can also be claimed if the availability of the residential property was affected by specific circumstances, such as being newly constructed, seasonally inaccessible, undergoing renovation, or uninhabitable due to disaster or dangerous conditions.

Location-based exemptions are available for vacation properties, such as cottages in eligible areas of Canada, used by the owner, spouse, or common-law partner for at least 28 days in the year.

Occupancy-based exemptions apply when the property is the primary residence for the owner, spouse, or common-law partner or for a child attending a designated learning institution for at least 180 days in the year.

Other occupancy exemptions include periods of at least one month where certain qualifying occupants continuously occupy the property, including individuals with arm’s length contracts, individuals with non-arms length contracts paying fair rent, owners with Canadian work permits, and Canadian citizens or permanent residents.

Follow this link for a full list of extensions.

How to Calculate Your UHT Obligation

If you are an affected owner, multiply the residential property’s worth by the 1% tax rate to determine how much you will be required to pay in UHT. After that, you must multiply the outcome by the proportion of the property you own.

How to Calculate the Value of a Prescribed Property

For your calculations, you can either use the taxable value of your property or its fair market value. However, you must submit an election to the CRA if you decide to use fair market value. In order to do this, you must obtain an independent appraisal of the property from a licensed, qualified real estate appraiser. The appraisal report needs to be written expressly to help with the UHT administration.

Filing A UHT Return

As an affected owner of a residential property in Canada on December 31, you must file an Underused Housing Tax return for the calendar year – even if you qualify for an exemption and you do not owe any tax. Returns can be filed electronically or by mail.

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