Owners of residential property in Canada may be required to file an annual return and pay taxes under the Underused Housing Tax Act, (the “Act,”) unless they are classified as an “excluded user”. This Act became effective on January 1, 2022, and it imposes an ownership tax on vacant or underused residential properties. The Underused Housing Tax (UHT) return must be submitted by April 30th each year for each property owned as of December 31st of the preceding year.
How Does This Impact Trusts?
All trustees of a trust, regardless of citizenship or residency, must file the UHT return for all properties they hold title to. However, if you hold legal title to a property as the trustee of any of the following trusts you may not be required to file the UHT return:
- Personal representatives of a deceased individual.
- Trustees of mutual fund trusts.
- Trustees of a real estate investment trust
- Specified investment flow through trust (SIFT trust).
Bare trustees, alter ego trustees as well as trustees in bankruptcy and receivership must fulfil the filing requirements under the Act. If there are multiple trustees registered on title of a property, each trustee must file for their proportionate share of ownership as indicated in the land title.
Penalty For Non-Compliance with Filing Obligations
The obligation to file the UHT return applies to all affected trustees holding legal title to residential property even if no tax is payable.
Failing to file a return under the Act, carries significant penalties, with individuals facing a minimum penalty of $5,000 and corporations facing a minimum penalty of $10,000. In addition to the penalty for not meeting the filing requirements, there are also penalties for late payments of the UHT.
Exemptions From Tax Payment Under the Act
While all affected Trustees must file a return for all properties owned, some trusts may be exempted from tax payment. An exemption can be claimed at the time of filing the return.
Here are some exemptions:
- A new owner within the calendar year.
- A partner or trustee of a specified Canadian trust or partnership.
- The owner, co-owner, or personal representative of a deceased owner.
- If the property was under construction during the year, uninhabitable, or unsuitable for all year living.
- If the property is a vacation home located in an eligible area of Canada and used by the owner or their spouse for at least 28 days in the calendar year.
- If the property serves as the primary residence for the owner, their spouse, or their child attending a designated learning institution.
- If the property was occupied for at least 180 days in the calendar year.
How To File Your Underuse Housing Tax Return
Individual and Corporations can file the return online using this link: Ready to file.
If you have any questions about how the Underused Housing Tax may affect you, our Real Estate Group would be happy to help.
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