Underused Housing Tax (UHT): File for 2022 by October 31

In February we provided an in-depth guide to the new federal Underused Housing Tax (UHT), which is in effect for 2022 and subsequent years. The UHT imposes an obligation to file a UHT return in respect of certain residential property that you, your company, your trust or partnership owned on December 31, and to possibly pay a 1% tax on the taxable value of a residential property.

Failure to file a required 2022 UHT return and pay the 1% tax by the October 31, 2023 deadline will result in a minimum penalty of $5,000. As the deadline is fast approaching, we want to ensure you have all the latest information you need to have your 2022 UHT return prepared and to file it on time.

What is a reportable residential property?

Generally, a reportable residential property includes houses or residential buildings with three or fewer dwelling units, or part of a building such as a condominium, townhouse, apartment unit, semi-attached unit or similar premises that is separately owned.

Who must file a 2022 UHT return?

An owner is the registered legal owner on December 31, 2022 of a particular residential property under the land registration system or similar system applicable to the particular residential property. Certain ‘excluded owners’ are exempt from filing a UHT return, including an owner who is either a Canadian citizen or permanent resident on December 31, but not an owner who is the registered legal owner as:

• a trustee of a trust (e.g., family trust, alter ego trust, joint spousal trust, bare trust), unless the trust is an estate of a deceased individual; or,
• a partner of a partnership

Other excluded owners include:

• Corporations incorporated under the laws of Canada or a province whose shares are listed on a designated stock exchange in Canada;
• Registered charities (as defined in subsection 248(1) of the Income Tax Act);
• Cooperative housing corporations;
• Municipalities;
• Public colleges and universities; and,
• Indigenous governing bodies and other public services bodies

All other individuals, private corporations, trusts and partnerships who are not excluded owners must file a 2022 UHT return for each residential property they owned on December 31, 2022.

Exemptions from Paying the 1% UHT Tax

While you may need to file a UHT return, you may be exempt from paying the 1% UHT tax if your property or ownership meets specific criteria. These exemptions include properties used as primary residences, properties with qualifying occupancy periods, properties not suitable for year-round use and more.

A return must be filed to claim any of these exemptions, so please read our comprehensive list of UHT exemptions and talk to your DMCL advisor to see if your situation falls under any of the outlined exemptions.

Filing Your UHT Return

Complete the following steps to prepare and file your UHT return:

1. Identify the legal registered owner of your residential property using the most recent property tax notice or relevant legal documentation.
2. If the legal registered owner is not an excluded owner (please refer to the first section of this article), a UHT return is required to be filed.
3. Collect and provide the following information to your DMCL advisor for the preparation and filing of the UHT return:
   • The most recent property tax assessment notice for the particular property;
   • The most recent purchase price of the property;
   • The ownership structure setting out who the owners of the property are and in what percentage;
   • If the property is owned by a partnership or by a partner on behalf of a partnership, the partnership identification number;
   • If the property is owned by a trust or by a trustee of a trust, the trust account number;
   • The type of property (e.g., detached house, condominium, duplex, townhouse, etc.);
   • The year you (or the entity, in the case of a trust or partnership) became the owner of the property;
   • The type of ownership of the property (e.g., joint tenancy, tenancy in common, sole ownership, etc.);
   • Any rental agreements in place for the property; and,
   • Details about the use of the residential property in 2022, such as:
     • The use of the property as the primary residence for yourself, your spouse and/or your children and the number of days in the year it was so used; and,
     • The use by an arm’s length individual who had continuous occupancy of the residential property and the number of days in the year it was used

The UHT is a complex tax with significant consequences for non-compliance. Staying informed about your obligations is crucial, so don’t wait to reach out to your DMCL advisor to ensure you meet the October 31, 2023 deadline. While the UHT may not apply to everyone, understanding your requirements is essential to avoid unexpected penalties.

Article written by Ken Chong, CPA, CA