With the 2021 Federal budget, the Government of Canada announced a new one percent annual tax on residential properties that are underutilized or vacant, the Underused House Tax (UHT). As of January 1, 2022, this new tax act came into effect. Although the criteria for excluded owners and exemptions are widespread, it’s important to know if your residential properties here in Grande Prairie, or elsewhere in Canada, qualify. Failure to file under this act can be costly.
Who is Affected by the UHT?
Residential property owners who meet the Federal Government’s criteria for the UHT are referred to as “Affected Owners” and must file a UHT return. The return is required even if the property is exempt from paying the tax. Affected Owners are described as non-Canadian, non-resident individuals owning residential property in Canada on December 31, 2022. Affected properties may be owned by individuals, private corporations, partnerships, and trusts.
There are many exemption criteria for affected owners that are presented below. It is important to note that ALL affected owners MUST file the UHT return for each qualifying property, even if only to claim an exemption from the tax.
Types of Properties Affected
The Federal Government considers a residential property an independent dwelling unit that consists of a kitchen, bathroom and living area. These include:
- Detached houses, including those with suites
- Semi-detached houses (duplex, four-plex)
- Row Houses
- Residential Condominiums
- Similar separated units or parcels (mini-homes, cottage, camp etc.)
Affected Owner Exemptions
There are ways to demonstrate that an affected property is used or unable to be used which can qualify the affected owner for an exemption from the UHT.
- Primary place of residence for the owner, spouse or common-law partner or child
- Seasonal property access
- Property is located in a prescribed area based on census data and the owner, spouse or common-law partner occupied the property for at least 28 days in the calendar year
- Uninhabitable due to disaster or hazard for at least 60 consecutive days
- Uninhabitable due to renovation or construction for at least 120 consecutive days
- Construction of unoccupied property for sale
- Year of and year following the owner’s death, including the personal representative of a deceased and surviving owners of jointly owned property where the deceased owned at least 25 percent.
- Specified Canadian corporation with less than 10 percent foreign ownership
- Specified Canadian Partnership where all members are excluded owners or specified Canadian corporations
- Trustee of a Specified Canadian trust where all beneficiaries are excluded owners or specified Canadian corporations
- Initial year of property acquisition
- Property was occupied for a minimum of 180 days in the calendar year including at least one-month occupancy by a:
- Third-party rental agreement
- Relative paying fair rent
- Spouse or common-law partner in Canada on a work permit, or
- Canadian citizen or permanent resident immediate family member (Spouse, common-law partner, parent or child)
Who is an Owner?
The Act applies to the person identified on the land registration, the person holding a long-term lease of 20 years or more or the person with a life interest on the land or residential property.
Who Is an Excluded Owner?
Residential property owners who fall into one of the excluded owner categories are not required to file the UHT return or pay the one percent tax. Simply put, if you are an individual Canadian Citizen or permanent resident owning personal or investment residential property, you are excluded. The following are also considered excluded owners for the Act and are not required to file the UHT return:
- A publicly traded Canadian corporation
- A person with title to the property as trustees of various widely held trusts
- A registered charity
- A cooperative housing corporation
- A municipal organization or other public institutions and government bodies
How to Calculate the Tax
The 1% tax is calculated based on the greater value of either the property tax assessed value or the most recent sale price multiplied by affected ownership percentage.
How and When to File
Affected owners must file a UHT return with the Canadian Revenue Agency for each property annually, including those that qualify for the exemption. This is done using form UHT-2900 which is due along with any amounts owing, by April 30 each year or May 1, 2023; as the deadline fell on a Sunday this year.
Failure to file or filing late can result in penalties of $5,000 for individuals and $10,000 for other types of owners – plus additional penalties, interest, and the risk of losing exemption status.
The good news is, our neighbours here in Grande Prairie who choose to invest in holiday vacation rentals for income, own a cabin on the lake for summer fishing or keep an inherited heritage house on the east coast for sentimental purposes are unlikely to be affected by the Underused Housing Tax. If you’re unsure if a residential property is affected, or if the ownership structure has the potential to be, reach out to our team here at McNabb Lucuk LLP and we’d be happy to walk you through the criteria to see how it applies to your specific circumstances.