Underused Housing Tax (UHT)

What you need to know if you own real estate in Canada

On June 9, 2022, Canada’s Bill C-8 was enacted. The bill implements certain measures including Canada’s new 1% “Underused Housing Tax”. This new law is retroactively effective January 1, 2022. The stated purpose for introducing this national tax was to ensure that non-resident owners who were using Canada as a place to passively store their wealth in housing pay their fair share.

Some details have not been confirmed yet thus regulation and additional revisions may still affect this new tax regime. Real Estate owners are advised to check if this new Act applies to them and / or if they have a tax filing requirement.

The Underused Housing Tax which applies on a calendar year basis is an annual 1% tax on the value of vacant or underused residential property directly or indirectly owned by non-Canadians and non- Residents on December 31 st of the particular calendar year.

Residential property is defined as:

• Detached homes and similar buildings with up to three dwelling units (such as a Duplex or Triplex).
• Semi-detached homes, row-house units, residential condominium units and other similar premises.

Excluded Owners are excluded from this tax. Examples of Excluded Owners are:

• Canadian Citizens, Permanent Canadian Residents (unless they hold the property interest as a partner in a partnership or as a trustee of a trust).
• Corporations incorporated in Canada whose shares are listed on a designated Canadian Stock exchange.
• Registered Charities.
• Cooperative Housing Corporations.
• Others

Note that private taxable Canadian corporations, partnerships, and trusts are not excluded!

Owners that are not excluded are required to pay the tax unless they qualify for an exemption in the calendar year. However, such owners will nonetheless be required to file an annual return under the act.

Here are some exemptions (among others) that are most likely to be applicable:

Primary Place of Residence: Property that is the primary place of residence of the owner, the owner’s spouse or common-law partner or the child of the owner or the owner’s spouse or common-law partner if the child occupies the property for the purpose of authorized study at a designated learning institution.

Qualifying Occupancy: Where the owner meets a “qualifying occupancy” test (the property is occupied by the qualifying occupant in periods of at least one month that total 180 days or more in the calendar year). This can be a tenant or other qualified occupants.

Specified Canadian Corporations and Partnerships.

Seasonal Residence: The residential property is not suitable for year-round use as a place of residence or seasonally inaccessible.

Disaster or hazardous condition: The residential property is uninhabitable for a specific number of days due to disasters or hazardous conditions beyond the reasonable control of an owner or due to renovations.

Year of acquiring an interest in the property: Where the owner of the residential property acquired the property in the calendar year (as long as the person never owned the property in the prior nine calendar years).

Death of Owner: The owner of the residential property died in the calendar year or in the previous calendar year.

The Canadian government indicated that it would provide an exemption for vacation and recreational properties. This exemption would apply if the following conditions were met:

-  The residential property is in an area of Canada that is not an urban area within either a census metropolitan area or a census agglomeration having 30,000 or more residents and …

- The residential property is personally used by the owner or the owner’s spouse for four weeks in the calendar year.

This is however not currently reflected in the act!

Tax Rate: The tax applies at the rate of 1% on the greater of:

• The residential property’s tax value which is the property’s assessed value for property tax purposes.
• The property’s most recent sale price on or before December 31 st of the calendar year.

Owners will also be able to elect to use fair market value, determined under prescribed rules.

What does that mean for You?

If you are not a resident of Canada or do not reside in properties that you currently own, you might need to pay the newly introduced 1% “Underused Housing Tax”. This tax will be retroactive to January 1, 2022. There are some exempt owners and exceptions to this tax that you will want to read through to see if you qualify.

For official information and resources:

1. Gov. of Canada Department of Finance News Release 
2. Gov. of Canada Department of Finance Consultation on the Underused Housing Tax.

This blog is meant to give a first overview / idea on the topic. The author is not qualified to give advice on tax matters. The author is not responsible for any errors or omissions, or for the results obtained from the use of this
information. All information in this site is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information. The reader is strongly advised to consult a qualified tax specialist for further information.