Meet the new “Underused Housing Tax”

Well, it’s for a good cause. We’re all aware that Canada has a housing shortage – and, in some regions, that’s been exacerbated by non-resident investors, who buy residences but then let them sit empty. So, the federal government has passed the Underused Housing Tax Act, which imposes an annual 1% tax of the property’s market value on those who indulge in this uncivil behaviour.

Obviously, you don’t want to tax people who are blameless – and the Act does a fairly good job of exempting from tax the people who aren’t meant to pay it.

BUT…. this is a particularly nasty piece of legislation in one respect: Many more people will have to comply with it than you might think. Even if you don’t have to pay the UHT, you may have to file a return. And if you don’t you may be hit with very nasty penalties – up to $10,000 PER RESIDENTIAL PROPERTY.

Please read. If you think this may affect you, please call us. The filing deadline is April 30, 2023*. If you’d like us to help you, we’ll need all relevant info by April 15 at the latest (hey, this is new stuff and there are always wrinkles). (* the CRA has given until October 31st to have your UHT filed BUT is for this year only as this is new)

These links take you to the CRA writeup on the tax, and the Return itself (ie. the form you need to file). But please read on, first.

So…. do I have to worry about this?

I honestly don’t expect many of my clients to have to pay this tax – particularly not if you are Canadian resident. However, if you have a residential property with at least one non-Canadian owner (direct or indirect), you may be exposed to actually paying it. Please refer to the CRA document for more info, and call if confused.

The bigger issue: You may be required to FILE THE RETURN, even if you are exempt from the tax. Please don’t assume it will go away. And the penalties are very nasty.

We’ve read through the material in more detail than you want to do, and here are the key takeaways:

• You may need to file the return if you own residential property in a privately-held Canadian corporation. Some others may also be affected (eg. trustees where the trust holds property). Ownership is determined by who is listed as owner(s) in the land registry system, regardless of whether or not the legal owner is the “beneficial owner”.

• It may not always be clear what’s counted as “residential property” for these purposes. For example, if you own a unit which is a retail store downstairs and a rented apartment up top, that depends if it’s “primarily (more than 50%)” retail or not. We don’t yet know what “more than 50% refers to. Rental income? Square footage?

• You may have to file multiple returns. For example, if you own 6 separate units in the same condo complex…. that‘s 6 filings.

OK, I’m caught. What do I need to do?

Clearly, you need to file on time. You’re welcome to do this yourself. I won’t say the return is particularly nice to read (especially from p3 onwards) – but it’s not hugely complex. It does have 3 pages of footnotes and definitions.

Information that will be needed:

• The basic stuff – who’s the owner; how’s it owned; what and where is the property.

• Less obvious stuff: “The assessed value of the property that is (or includes) the residential property”. We assume this is the MPAC value. In a split-purpose building, we assume it’s the whole building.

• And: “What was the residential property’s most recent sale price on or before December 31 of the calendar year?” (In other words, what did you pay for it?)

We’re happy to help you if you prefer. But we will need all relevant information by April 15, 2023, to be able to commit to the deadline.

Good luck. We’re here if you need us!

~ Jules