The Underused Housing Tax (UHT) Act became effective in Canada on January 1, 2022. This new piece of legislation is the federal government’s response to (try) to deal with the supply issues facing Canadians who want to enter the currently overpriced housing market, by way of penalizing foreign property owners who are holding their properties as vacant with a tax equal to 1% of the value of the property.
As a Canadian citizen or permanent resident who owns a residential investment property in a partnership or in a Canadian-registered corporation, and that property remains occupied by tenants, you may see this paragraph and instinctively say, “UHT doesn’t apply to me, therefore, I don’t really care to learn more about it.”
Unfortunately, if this is you, you have been duped and ill-informed by the Canadian government.
Technically speaking, Canadian citizens and permanent residents who own investment property in a Canadian corporation, partnership, or trust do not end up owing any UHT – the Act carves out specific exemptions that include these groups of taxpayers (as long as your other partners or shareholders are also Canadian citizens or permanent residents). However, at the time that this article was written, all three of these groups are not defined as “excluded owners” for the purposes of needing to file a UHT return.
What makes matters worse is that complying with the filing requirements is also not the quickest, most straightforward task. In filing the return, you are required to declare the taxable value of your property, which involves looking up assessment notices and historical purchase prices of your residential property. In addition, if the ownership is shared with multiple persons, you need to provide a list of all the owners’ names if they own 10% or more of the residential property.
Even if the Canada Revenue Agency (CRA) has been releasing guidance material as late of mid February on UHT, they are still enforcing the fast-approaching filing deadline of May 1st, 2023 for the UHT Return.
So what happens if you simply decide not to file the UHT Return, especially if you know that you won’t owe any UHT?
Unfortunately, the late filing penalties are VERY SEVERE: $5,000 if you are an individual, and $10,000 if you are not an individual (i.e. a corporation, partnership, or trust). This penalty increases if you also end up owing UHT based on a percentage of the UHT payable.
Given that rented residential properties are declared for tax purposes, it will be fairly easy for the CRA to use computers to determine who should have filed a UHT return, and arbitrarily assess taxpayers with these harsh late filing penalties.
The time to be proactive about UHT is now while you still have some time left.
Cheers,
Steven Pitucci, CPA, CA
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In order to learn more about the UHT Act, along with how to navigate through the “grey areas”, check out the course I recently published, available on CPDFormula: https://cpdformula.com/course/the-underused-housing-tax-act-a-comprehensive-walkthrough