In November 2023, the Federal government proposed several changes to the Underused Housing Tax Act (UHTA) and those changes could affect how you file your taxes this year.

According to the Federal government, the UHT is an annual federal one per cent tax on the ownership of vacant or otherwise underused housing in Canada. It has been in effect since January 1, 2022. However, the most recent proposed changes may affect many property owners.

"Following a consultation period, the government intends to bring forward legislation for consideration by Parliament," The Canadian Revenue Agency (CRA) stated on its website in late December.

This means that starting with the 2022 calendar year and for each following calendar year, owners of housing in Canada will have to, 'determine their obligations and liabilities under the UHTA.'

"Some affected owners must file an annual return and pay the underused housing tax. Other affected owners have to file an annual return but not pay the underused housing tax. Excluded owners do not have to file an annual return or pay the underused housing tax."

Who and what is impacted?

As of December 31, 2023, you must file a UHT-2900 Underused Housing Tax Return and Election Form if:

  • The property is residential and you are an owner of the residential property and you are determined to be an affected owner of the residential property.

According to the CRA, an 'affected owner' is listed as, though not limited to:

  • Individuals who are not citizens or permanent residents of Canada and who are owners of residential property in Canada in any capacity.
  • Individuals who are citizens or permanent residents of Canada and who are owners of residential property in Canada in either of the following capacities:
    • as a trustee of a trust (other than as a personal representative of a deceased individual and other than as a trustee of a mutual fund trust, real estate investment trust or SIFT trust for Canadian income tax purposes)
    • as a partner of a partnership.

Residential properties are defined as:

  • A detached house or similar building that contains not more than three dwelling units, along with any appurtenances and the related land.
  • A semi-detached house, rowhouse unit, residential condominium unit or other similar premises, along with any common areas, appurtenances and the related land.

Properties that are not considered residential include:

  • Quadruplexes (buildings that have four dwelling units)
  • High-rise apartment buildings
  • Buildings that are primarily (more than 50 per cent) for retail or office use and that contain an apartment
  • commercial condominium units
  • Boarding houses and lodging houses
  • Commercial cottages, cabins and chalets (that is, those that are used by the operator of an establishment to provide lodging to several unrelated business or leisure travellers at once in separate cottages, cabins or chalets)
  • Hotels, motels, inns, and bed and breakfasts
  • Floating homes
  • Mobile homes
  • Park model trailers
  • Travel trailers, motor homes and camping trailers

Important things to remember include that if you are an affected owner of more than one residential property in Canada, you must file a separate return for each property you are one of several affected owners of the residential property, each of you must file a separate return for the property.

Who is exempt?

Excluded owners do not have any obligations under the UHTA. A list of excluded owners includes:

  • An individual who is a Canadian citizen or permanent resident (unless included in the list of affected owners)
  • Any person that owns a residential property as a trustee of a mutual fund trust, real estate investment trust, or specified investment flow-through (SIFT) trust for Canadian income tax purposes
  • A Canadian corporation whose shares are listed on a Canadian stock exchange designated for Canadian income tax purposes
  • A registered charity for Canadian income tax purposes
  • A cooperative housing corporation, hospital authority, municipality, para-municipal organization, public college, school authority, or university for Canadian GST/HST purposes
  • An Indigenous governing body or a corporation wholly owned by an Indigenous governing body
  • His Majesty in right of Canada or a province or an agent of His Majesty in right of Canada or a province

Other exemptions may also include:

  • a vacation property that is located in an eligible area of Canada
  • used as a primary place of residence or for qualifying occupancy
  • not suitable for year-round use
  • seasonally inaccessible
  • uninhabitable during the calendar year
  • newly constructed
  • a partner of a specified Canadian partnership, a trustee of a specified Canadian trust or a specified Canadian corporation
  • a new owner
  • a deceased individual, or their personal representative or co-owner

Penalties 

"There are significant penalties if you fail to file an annual return when it is due. Affected owners who are individuals are subject to a minimum penalty of $5,000. Affected owners that are corporations are subject to a minimum penalty of $10,000," The CRA warned.

However, penalties and interest will be waived if the CRA receives one's tax return and the amount owing by April 30, 2024.

"Penalties and interest were previously waived until October 31, 2023, but this has been extended. The deadline for making any elections for 2022 is also April 30. Elections can be made within your Underused Housing Tax return."

The CRA advises that to better understand whether you will be affected, you can contact them for guidance. 

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