Unlocking Canada’s Housing Market: Exploring the Underused Housing Tax (UHT)

Soaring property prices leading to Canadians struggling with housing affordability has had a significant impact on the Canadian housing market. To address these concerns and encourage the efficient use of residential properties, the Canadian government introduced the Underused Housing Tax (UHT). In this blog post, we will examine how the UHT works, its impact on the housing market, and how we can help you file your return accurately and on time.

Understanding the Underused Housing Tax

The Underused Housing Tax (UHT) is a policy tool introduced to tackle issues related to housing supply and affordability. Its goal is to encourage property owners to make better use of their residential properties and to deter the hoarding of underused properties. Essentially, it’s a tax on residential properties that are not being adequately utilized.

The annual federal tax of one percent is issued on vacant or underused housing and came into effect on January 1, 2022. While this tax typically impacts foreign national housing owners in Canada, it can still apply to Canadian owners, including partners, trustees, and corporations.

The Underused Housing Tax (UHT) operates by levying a tax on properties that are deemed to be underused. This tax is typically calculated based on factors such as the property’s assessed value, the duration of underuse, and the property’s location. Higher tax rates are often applied to properties that have been underused for extended periods.

Impact on Housing Market

• Addressing Housing Affordability: The UHT seeks to make housing more affordable by encouraging property owners to rent or sell their underused properties. This, in turn, increases the supply of available housing units.
• Efficient Use of Properties: Through discouraging the hoarding of residential properties, the UHT promotes the efficient use of existing housing supply while potentially reducing the need for new developments.
• Property Prices and Rental Markets: The UHT may impact property prices, making housing more accessible to first-time buyers. It can also impact the rental market by increasing the availability of rental units.

Eligibility and Exemptions

Not all residential properties are subject to the UHT. There are criteria that determine which properties are eligible for the tax. Additionally, certain exemptions and exceptions exist, such as properties used for specific purposes like agriculture or charitable activities. Affected owners must file even if there are no taxes owing.

Affected owners who must file for the Underused Housing Tax (UHT) include but are not limited to:

• A foreign national (an individual who is not a Canadian citizen or permanent resident)
• A Canadian citizen or permanent resident who owns a residential property in Canada as a trustee of a trust
• A Canadian citizen or permanent resident who owns a residential property as a partner in a partnership
• A corporation that is incorporated outside of Canada
• A Canadian corporation whose shares are not listed on a Canadian stock exchange designated for Canadian income tax purposes
• A Canadian corporation without share capital

For those who must file a UHT return, you must file for each of your Canadian properties that meet the following conditions on December 31:

• The property is a residential property
• You are an owner of the residential property
• You are determined to be an affected owner of the residential property

Affected owners must file a separate annual return for each property in Canada, and should you be one of several owners of a property, you each must issue a separate return.

Tax Rates and Penalties

To determine the tax payable, you must multiply the property’s value by the tax rate (one percent) and then multiply the result by the percentage of your ownership of the property. The due date to file your 2022 UHT return was April 30, 2023. However, penalties and interest for 2022 will be waived, provided your return and taxes owing are paid by October 31, 2023. 

The penalties for not issuing a return are steep. Individuals are required to pay a minimum of $5,000, while corporations must pay a minimum of $10,000, as well as interest payments should the amount owing go unpaid.

How We Can Help

The trusted tax experts at DDL & Co. are well-versed in the nuances of the UHT. We have the experience and know-how to ensure our clients’ returns are filed on time while remaining compliant. Our fee for filing a UHT return is $400 for the first return and $200 for each additional return.

Should you be impacted by the UHT, or have any questions, please contact Pietro De Luca at pietro@ddlaccounting.com. 

Contact DDL & Co. in the Niagara Region to Help You with Your Tax Needs

Working with a trusted tax expert is essential for ensuring you file returns on time while remaining compliant. DDL & Co.‘s accountants and tax consultants can provide accounting, tax filing, and tax planning consultation services. To learn more about how DDL & Co. can provide you with the best accounting and tax planning expertise, contact us online or by telephone at 905-680-8669.