Owners of Canadian residential property can breathe a sigh of relief when it comes to the relatively new Federal Underused Housing Tax (the “UHT”) that came into effect on January 01, 2022. When the UHT first came into effect, the filing deadline was April 30, 2023, which was later extended to October 31, 2023. In a news release issued on October 31, 2023, the Minister of National Revenue announced that owners affected by the UHT would be given until April 30, 2024, to file their 2022 returns without the risk of penalties or interest.
What is the UHT?
The UHT is a broadly applicable tax that affects individuals, privately owned corporations, partnerships and trusts that own residential properties in Canada. In many cases, owners will qualify for an exemption and not be required to pay the UHT. However, qualifying for an exemption does not relieve an affected owner from filing a UHT return, which has left many owners scrambling to file UHT returns before the filing deadline. Pushor Mitchell previously published a detailed article on the UHT detailing definitions, exemptions, and penalties, which can be found here.
What is a Residential Property under the UHT?
The UHT classifies “residential properties” as detached houses or similar buildings containing not more than four units. Each unit must have a private kitchen, private bath, and private living area. It also includes semi-detached houses, row houses, condominium and strata units, and other divisions of property – like carriage houses or laneway houses. This means that property owners who own a piece of land with more than one residential property (for example both a primary residence and a carriage house) may be required to file multiple UHT returns each year.
Practically speaking, every registered property owner of a detached home or strata unit should ask their professional advisors whether they are required to file a UHT return before the new filing deadline.
Does the UHT Affect You?
The UHT classifies residential property owners into two categories: affected owners and excluded owners. Anyone who falls under the classification of excluded owner is not required to file a UHT return. In contrast, every affected owner must file a UHT return, even if they qualify for an exemption.
Owners of residential property are classified as “excluded owners” if they are:
- an individual who is a Canadian citizen or permanent resident;
- a Canadian publicly traded corporation;
- an owner of residential property acting as a trustee of certain widely held trusts;
- a registered charity;
- a cooperative housing corporation; and
- certain public institutions and government bodies.
If an owner is not included in the list of excluded owners, they are classified as an affected owner and must file a UHT return before the filing deadline or risk penalties.
It is important to note that individuals in a partnership or trustees of a trust are not excluded owners and must file a UHT return. This nuance in the legislation is critical for individuals who are trustees of bare trusts for estate planning and financing reasons. If you are a registered owner on the title of the property, you should seek advice about whether you are obligated to file a UHT return, as the penalties for failing to file or late filing can be significant.
Exemptions from the UHT
While the UHT imposes a filing obligation on a significant number of property owners, there are several exemptions that result in the vast majority of property owners being exempt from paying the UHT. A more detailed breakdown of the exemptions can be found in our previous article. Generally, there are exemptions available based on the following:
- characteristics of the owner;
- characteristics of the occupant of the property;
- availability of the property; and
- the location of the property.
What You Need to Know
The extension of the filing deadline announced on October 31, 2023, brings relief for many property owners. Additionally, the extension may save many property owners who didn’t realize they were obligated to file a UHT return and could have been penalized. The new April 30, 2024, filing deadline coincides with the deadline for filing 2023 UHT returns, meaning that affected owners will have to file two returns by April 30, 2024.
The implementation of the UHT has been confusing, and determining which exemption each affected owner should claim can be difficult. If you are having trouble determining what exemption you can claim or need assistance navigating the process, the tax team at Pushor Mitchell is here to assist you.
For more information on the UHT and the different exemptions and penalties, you can view our more comprehensive article here or contact Kyle Ramsey at [email protected].
