by Ron Clarke
The Underused Housing Tax Act (UHT) was introduced by the federal government in 2022.
You may have heard about it, especially if you own rental residential property, but what is it all about?
It’s a tool for government to ferret out residential units that sit empty, or basically empty, in an attempt to reduce the housing shortage in Canada.
If a residential unit is identified as not being occupied, there may be a tax applied.
To set the stage with a simplified description of the UHT Act, for those owning a residential property it defines “excluded” people and business entities and “affected” people and businesses entities.
If “excluded”, there is no need to file a UHT tax form T2900 for the residential property.
If “affected”, there may be an applicable exemption from paying the UHT tax, but the UHT tax form T2900 must still be filed in order to prove the exemption. If this is the case and the T2900 is not filed, there is a minimum $5,000 penalty applied.
If the residential property owner is defined as an affected owner but without an applicable exemption, the T2900 must be filed and UHT tax paid.
The tax is one per cent of the value of the property … and the math on that can be staggering.
If the T2900 is filed late or not filed, the $5,000 penalty is applied plus interest levied on the tax owing.
Who’s on the government’s radar given this new UHT Act?
Its initial impetus was focused on foreign individuals living outside of Canada buying residential properties in Canada as an investment, and then letting these residential properties often sit empty.
However, the UTH Act is not just focused on people living abroad and owning residential properties in Canada.
It also includes people living in Canada who are not Canadian Citizens or Permanent Residents of Canada and owning residential property.
The UHT Act cannot be avoided by setting up a partnership, trust, or corporation to own a residential property since the UHT Act applies to these types of business entities.
Additionally, even if a business entity is owned 100 per cent by a Canadian Citizen or Permanent Resident, the business is not automatically exempted like individuals are.
Instead, the business entity must file a T2900, and if the business entity is an affected owner, there may be an applicable exemption and the T2900 is filed as such.
If the filing is missed or even late, these business entities face a $10,000 penalty.
Who or what is exempt from the UHT Act when owning a residential property?
Registered Charities, Co-op Housing Corporations and any Indigenous Governing Body are exempt.
And public corporations listed on a stock exchange in Canada are exempt.
Canadian Citizens and Permanent Residents are generally exempt from the UHT Act provided the residential property is registered in their personal name as an individual.
Notably, in the case of a spouse who is not a Canadian citizen or Permanent Resident, that spouse is affected by the UHT Act but may have an applicable exemption.
Clear as mud?
Thankfully CRA offers a useful on-line self-assessment tool to check your situation’s applicability to the UHT Act.
Given the hefty penalty, it may be worth an hour or two of your time, or perhaps pursuing some professional advice.
And even though the 2022 filing deadline was extended six months given the needed fine tuning of the legislation, the 2023 filing deadline will likely remain firmly as April 30/24.
Ron Clarke, owner of JBS Business Services in Trail, provides accounting and tax services.