CRA’s UHT Update 2023: Are You Excluded from Underused Housing Tax Filing?

In 2022, the Canada Revenue Agency (CRA) introduced a new tax for homeowners who are foreign nationals. This tax is called Underused Housing Tax, or UHT. Under this tax, the eligible homeowner must pay a 1% federal tax on the property value at the end of the calendar year. If you own a property worth $500,000, you might have to file UHT and pay $5,000 in tax before April 30, 2024. The idea behind this tax is to reduce the number of vacant or underused houses owned by foreigners for investment purposes. 

Thankfully, not everyone has to pay this tax. 

Does Underused Housing Tax Apply to You? 

The UHT divides every individual, corporation, trust, and partnership that owns a Canadian residential property, partially or wholly, into the following two categories: 

• Affected owners who have to file UHT returns before April 30, 2024, or face hefty penalties. 
• Excluded owners who are excluded from filing UHT returns. 

If you own a property in Canada, you should check which of the two owners you are. Some Canadian corporations that own residential property could also fall under the affected owner segment. 

If you were an affected owner and filed UHT returns in 2022, there is a possibility you might be an excluded owner in 2023. The CRA has updated the definition of excluded owner. However, the new definition only applies to 2023 property ownership. If you are filing 2022 UHT returns, the old definition applies. 

Changes in Excluded Owner Definition in 2023 UHT Filing

Old definition: As per the 2022 definition of UHT: 

• Excluded owners are Canadian residents, public organizations, government bodies, registered charities, cooperative housing societies, and prescribed persons. The definition extends to hospital authority, municipality, para-municipal organization, public college, school authority, or university as per GST/HST filings. 
• Affected owners are non-residents, individuals who are not citizens of Canada, or private corporations, including trusts and partnerships outside Canada.

Updated definition (2023): However, the CRA updated the definition of excluded owners in 2023 to include specified trusts, partnerships, and corporations. A specified Canadian corporation is incorporated under Canadian laws, and foreign corporations or individuals own less than 10% of its voting power or stake. 

Such specified trusts, partnerships, and corporations may not be required to file 2023 UHT returns; however, they must file the 2022 UHT returns. 

Are You an Excluded Owner Under UHT Filings?

After adding the 2023 update, the UHT filing eligibility is as follows for trusts, partnerships, corporations, and individuals. 

Trusts: Whether a Canadian citizen, permanent resident or a foreign national, if you own residential property as a trustee of a mutual fund trust, real estate investment trust (REIT), or specified investment flow-through (SIFT) trust for Canadian income tax purposes, you are an excluded owner. In 2023, the CRA added specified Canadian trust to this list. 

If the property is owned by trusts other than the ones mentioned above, they are affected owners. Under the new bare trust rules, a bare trust that existed as of December 31, 2022, and owns a residential property is also an affected owner. 

Partnerships: Canadian citizens or permanent residents who own a residential property as a partner of a specified Canadian partnership (2023 update) are excluded owners. Partners of any other partnership are affected owners. 

Corporations: Canadian corporations which own a residential property are an excluded owner if they 

• Are incorporated in Canada,
• Have their shares listed on a Canadian stock exchange, 
• Are a specified Canadian corporation (2023 update)
• Shares are significantly owned by a mutual fund trust, REIT, SIFT trust or a corporation whose shares are listed on a Canadian stock exchange. (2023 update)

Individuals: Canadian citizens or permanent residents of Canada who own a residential property or own the property as a personal representative of a deceased individual are the excluded owners. 

The above UHT classification only determines whether you are an excluded owner. The tax filing is even more complex if you are an affected owner but are exempt from tax liability. 

Since it is a new tax, the CRA has extended the tax filing deadline for 2022 UHT to April 30, 2024. However, the 2023 UHT tax filing deadline is also April 30, 2024, and the CRA is unlikely to extend this deadline. 

If you haven’t filed the 2022 UHT return, consult a professional tax expert to check your eligibility. If you are eligible and fail to file the returns, you could face a penalty of $1,000 (individuals) and $2,000 (other owners like trusts, partnerships, and corporations). 

Contact DDL & Co. in St. Catharines to Help You with Underused Housing Tax 

A professional tax consultant is skilled in dealing with complicated tax laws and eligibility criteria. They can assess your situation and file the returns on time and according to the guidelines. They can also handle any enquiries from the CRA. To learn how DDL & Co. can provide you with UHT filing and consultation, contact us online or at 905-680-8669.