Canada’s housing market has faced significant challenges in recent years, with speculation and vacant properties contributing to affordability concerns. To address these issues, the government of Canada introduced the Underused Housing Tax (UHT) in 2022—a federal measure that affects both foreign and domestic property owners across the country.
If you own residential property in Canada, understanding the UHT could save you from substantial penalties and ensure you remain compliant with tax obligations. The UHT is one of several vacancy taxes or homes taxes targeting vacant or underused housing in Canada. It is part of a broader effort to address vacant or underused housing through various legislative measures. This comprehensive guide breaks down everything you need to know about the UHT, from determining whether you’re affected to filing requirements and potential exemptions.
The stakes are high: failure to file required returns can result in penalties of $5,000 for individuals or $10,000 for corporations, even if you qualify for exemptions and owe no tax.
Understanding the Underused Housing Tax
The UHT is an annual 1% tax on vacant or underused Canadian residential property for UHT purposes in Canada that took effect on January 1, 2022. The tax primarily targets non residents and foreign owners, while individual Canadian citizens and permanent residents are generally considered excluded owners and are not required to file a UHT return. However, it also applies to certain Canadian property owners in specific situations.
The government designed this tax to reduce speculation in Canada’s housing market by discouraging investors from purchasing properties and leaving them unoccupied. Additionally, the UHT aims to increase rental availability for Canadian residents who may struggle to purchase homes in competitive markets. For UHT purposes, Canadian residential property includes homes, condos, and similar dwellings.
While foreign buyers represent the primary focus, some Canadians—particularly those who own properties through private corporations—may still need to file returns even when they owe no tax.
Who Must File UHT Returns
The UHT system categorizes property owners into three groups: excluded owners, affected owners, and those eligible for exemptions. Understanding these distinctions is crucial for determining your obligations. Each affected owner must file a separate underused housing tax return (Form UHT-2900) for each property they own, even if ownership is shared. Late filing penalties apply if the underused housing tax return is not submitted by the deadline.
Excluded Owners
Excluded owners face no obligations under the UHT Act. This category includes:
- Canadian citizens or permanent residents (with some exceptions)
- Canadian partnerships that meet specified criteria
- Canadian trusts, including specified Canadian trusts
- Trustees of mutual fund trusts, real estate investment trusts, or specified investment flow-through trusts
- Canadian corporations listed on designated Canadian stock exchanges
- Registered charities (such a body exempt from UHT filing requirements)
- Cooperative housing corporations for GST/HST purposes (such a body exempt from UHT filing requirements)
- Hospital authorities (such a body exempt from UHT filing requirements)
- Indigenous governing bodies or their wholly-owned corporations (such a body exempt from UHT filing requirements)
Affected Owners
If you don’t qualify as an excluded owner, you’re considered an affected owner with filing obligations. Affected owners include:
- Non-Canadian citizens or permanent residents
- Canadian citizens or permanent residents who own property as trustees (excluding personal representatives and certain trust types)
- Anyone owning property as a partnership partner
- Foreign-incorporated corporations
- Unlisted Canadian corporations
- Canadian corporations without share capital
The residency or status of a presiding officer, such as a chairperson, in a Canadian corporation, trust, or partnership can also impact UHT obligations, especially regarding ownership structure and exemption criteria.
A critical point: affected owners must file UHT returns for each property they own, even when qualifying for exemptions that eliminate tax liability.
Property Types Subject to UHT
The UHT applies to specific residential property types in Canada:
Single-family properties including detached houses (the most common example of a single-family home) and similar buildings with up to three dwelling units, plus related land and appurtenances. Properties held under a long term lease may also be subject to UHT if they meet the criteria for vacant residential properties.
Multi-unit residential properties such as semi-detached houses, rowhouse units, residential condominium units, and similar premises, including common areas and related land.
Specific examples include duplexes, triplexes, laneway houses, coach houses, non-commercial cottages, cabins, chalets, townhouses, and residential condominiums. Vacant residential properties are a primary focus of the UHT, as the tax targets underused or empty homes.
Special Considerations for Trusts and Partnerships
When properties are owned through trusts or partnerships, the legal owners (trustees or partners) bear responsibility for filing returns and paying applicable taxes. Unlike corporations, trusts and partnerships aren’t separate legal entities, making individual trustees and partners personally responsible for compliance.
However, certain Canadian partnerships and Canadian trusts may be excluded owners if they meet the criteria for specified Canadian partnerships or specified Canadian trusts as of December 31 each year. Specified Canadian trusts are generally exempt from UHT filing requirements, meaning they are not required to file UHT returns or pay the tax.
This creates a potential trap: some Canadian residents serving as trustees or partners may become affected owners requiring UHT return filing.
Available Exemptions
Several exemptions can eliminate UHT liability while maintaining filing requirements. These exemptions may depend on factors such as year round use of the property. These exemptions fall into four main categories:
Ownership Status Exemptions
You may qualify for exemptions based on your ownership status if you’re:
- A specified Canadian corporation
- A partner in a specified Canadian partnership or trustee of a specified Canadian trust
- A new owner during the calendar year
- A deceased owner, co-owner, or personal representative of a deceased owner
Property Availability Exemptions
Your property may qualify for exemptions if it’s:
- Newly constructed
- Not suitable for year-round use or seasonally inaccessible (properties not suitable for year round use may qualify for an exemption)
- Uninhabitable due to disasters, hazardous conditions, or renovations
Location and Purpose Exemptions
Vacation properties located in eligible areas of Canada qualify for exemptions when used by you or your spouse/common-law partner for at least 28 days during the calendar year. The Canada Revenue Agency provides a vacation property designation tool to help determine eligibility.
Occupancy Status Exemptions
Properties qualify for occupancy-based exemptions when they serve as:
- Primary residences for you, your spouse/common-law partner, or your child attending a designated learning institution
- Properties with at least 180 days of qualifying occupancy periods during the calendar year
Qualifying occupancy periods require at least one month of continuous occupancy by eligible individuals, including arm’s length renters with written contracts, non-arm’s length renters paying fair market rent, work permit holders, or qualifying family members who are Canadian citizens or permanent residents.
Calculating Your UHT Liability
When exemptions don’t apply, calculate your UHT by multiplying 1% by your property’s taxable value, adjusted for your ownership percentage. The property’s taxable value is determined for property tax purposes, based on the property’s assessed value or the most recent sale price.
The taxable value equals the higher of your property’s assessed value or most recent sale price. However, you can elect to use fair market value instead through a Fair Market Value Election.
Owners must pay the UHT by the deadline. If you pay late, interest will accrue on the overdue amount. A minimum penalty applies for late filing, and penalties may be significantly higher in cases of gross negligence.
Fair Market Value Election
To use fair market value, obtain a written appraisal from an accredited, independent real estate appraiser. The appraisal must have an effective date between January 1 of the tax year and April 30 of the following year.
Filing Requirements and Deadlines
All affected owners must file a separate underused housing tax return (Form UHT-2900) for each residential property owned on December 31 of the calendar year. If a property is jointly owned, each owner is required to file a separate return; joint filings are not permitted.
You can file your underused housing tax return electronically through the Canada Revenue Agency’s online system or submit paper returns by mail. Mailing addresses depend on your residence or corporation location:
Winnipeg Tax Centre serves residents of the United States, United Kingdom, France, Netherlands, Denmark, western Canadian provinces and territories, and most Ontario locations.
Sudbury Tax Centre serves residents of all other countries, eastern Canadian provinces, and specific Ontario cities including Barrie, Sudbury, and Toronto.
The Underused Housing Tax is one of several vacancy taxes that may apply to property owners in Canada, so it is important to be aware of all relevant filing obligations.
Penalties for Non-Compliance
The UHT imposes severe late filing penalties, including a minimum penalty of $5,000 for individual owners and $10,000 for corporations. These minimum penalties apply per failure, regardless of whether you owe any tax, making timely filing essential even when claiming exemptions. Penalties may be increased in cases of gross negligence, where intentional or reckless non-compliance is involved. Additionally, interest may be charged on any overdue amounts owed to the CRA.
Record-Keeping and Compliance
Maintaining thorough and accurate records is essential for every property owner subject to the Underused Housing Tax (UHT) in Canada. The Canada Revenue Agency (CRA) requires affected owners to keep detailed documentation for at least six years after the end of the relevant calendar year. These records are crucial for substantiating your ownership of residential properties, supporting any exemptions you claim, and demonstrating compliance with the federal underused housing tax.
Property owners should retain documents such as property deeds, titles, purchase and sale agreements, and rental contracts. If you are claiming an exemption—such as for qualifying occupancy, renovations, or use as a primary place of residence—you must also keep supporting evidence. This may include utility bills, lease agreements, proof of continuous possession, or records showing your child is attending a designated learning institution. For exemptions related to renovations or uninhabitable conditions, keep invoices, permits, and correspondence with contractors.
Affected owners are required to file an annual UHT return (Form UHT-2900) for each residential property owned as of December 31, even if they qualify for an exemption and owe no tax. Excluded owners, such as most Canadian citizens and permanent residents, are not required to file a UHT return, but should still maintain records to verify their exempt status if requested by the CRA.
The CRA provides comprehensive guidance on the UHT through its website and publications like Underused Housing Tax Notice UHTN1. These resources help property owners understand their obligations, including how to file a UHT return, claim exemptions, and determine if the UHT applies to their residential properties. In regions such as British Columbia, where the UHT applies to vacant or underused residential properties—including detached houses and residential condominium units—property owners should be especially diligent in meeting all compliance requirements.
To avoid costly penalties and ensure you are meeting your obligations under the underused housing tax UHT, consult the CRA website regularly and seek professional tax advice when needed. Proper record-keeping not only protects you in the event of a CRA review but also supports the broader goal of housing affordability in Canada by encouraging property owners to occupy or rent out their homes.
By staying organized and proactive, property owners can confidently navigate the UHT, avoid unnecessary penalties, and contribute to a more accessible housing market for all Canadians.
Taking Action on Your UHT Obligations
Understanding your UHT obligations protects you from significant penalties while ensuring compliance with Canadian tax law. The complexity of these rules, combined with severe penalties for non-compliance, makes professional guidance valuable for many property owners.
Review your property ownership structure and occupancy patterns to determine your filing requirements. If you’re unsure about your status or available exemptions, consider consulting with a qualified tax professional who specializes in Canadian real estate taxation.
Don’t let unfamiliarity with UHT rules result in costly penalties. Take action now to understand your obligations and ensure compliance with this important tax measure.
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The views expressed in this article are those of the author and should not be relied on to make decisions. Consider discussing your specific circumstances with an appropriate specialist.