As of January 1, 2022, if you own a residential property that is not your primary residence or own property indirectly, you need to be aware of the new Underutilized Housing Tax (UHT).
The UHT is a stand-alone tax introduced to target non-resident and non-Canadian owners of residential properties, but it may also affect some Canadian owners. As a Chartered Professional Accountant (CPA) firm, Clearly Financials wants to inform you about the new UHT rules and regulations.
In this blog post, we will explain what the UHT is, who needs to file a return, and who is exempt from paying the tax.
What is the Underutilized Housing Tax (UHT)
The UHT is an annual tax calculated as 1% of the value of affected residential properties. The deadline for filing the UHT return is April 30th, and significant penalties apply for failing to file a return on time. Individuals may face a penalty of $5,000, while corporations may face $10,000.
It is important to consider two things:
If you need to file a UHT return, and
If you are exempt from the UHT tax
Even if you are exempt from the tax, you may need to file a return to claim the exemption.
Attention: Are you holding a residential property on behalf of someone else? You may be surprised to learn that you need to file a UHT return! This can happen if, for example, you're on the title and mortgage for your child who doesn't qualify for a mortgage. As an affected owner, it's important to file your UHT return to avoid penalties and interest. Contact us today to learn more.
Who is excluded from filing a UHT return
Owners considered "excluded" have no obligations or liabilities under the Underused Housing Tax Act. Excluded owners include:
An individual who is a Canadian citizen or permanent resident, unless the property is held through a partnership or trust.
A corporation that is also listed on a Canadian Stock Exchange
Registered charities
Excluded owners do not need to file a UHT return. Please click here for the Canada Revenue Agency’s (CRA) list of other excluded owners.
Who is exempt from paying the UHT Tax?
Affected owners must file a UHT return and determine whether they are exempt or subject to the UHT tax. Some affected owners may be exempt from the UHT tax in the following ownership structures:
Specified Canadian corporations (under 10% foreign ownership)
Specified Canadian partnerships where each member is an excluded owner or specified Canadian corporation
Specified Canadian trusts where each beneficiary is an excluded owner or specified Canadian corporation
New owners that acquired the property in that year
Owners that died during the year or the previous year
Personal representatives for deceased individuals (in the year of death and subsequent year)
Co-owners, where another co-owner that held 25% or more of the property passed away in the year.
Scenarios Requiring UHT Return Filing: Three examples where filing a UHT return may be required in different scenarios include: • Rental Property Held by a Partnership: Individuals owning property through partnerships are affected owners and must file a UHT return. • Investment Property Owned through a Corporation: Business owners owning investment properties through a corporation are also affected owners and must file a UHT return. • Residential Property Owned through a Trust: If you are the legal property owner, but someone else is the beneficial owner, you likely have a bare trust. For instance, you helped a family member qualify for their mortgage and got added to the title. In this case, you are an affected owner and must file a UHT return.
If you are an affected owner exempt from the tax, please book an appointment to meet with one of our advisors to discuss the implications. If you are an affected owner not exempt from the UHT tax through ownership structure, continue reading to see if another exemption may apply.
Other UHT-Exempt Owners
Three additional exemptions may exempt affected owners from the UHT tax.
Exemption Due to Availability of Property
Affected owners may be exempt from paying the UHT if the property was:
under construction and not substantially completed by April of the year.
substantially completed between January 1st and March 31 o The property is put for sale to the public in the year, and o Any individual did not occupy the property in the year
not suitable to live in year-round or seasonably inaccessible due to public access not being maintained year-round
Property is uninhabitable due to a disaster or hazardous conditions for at least 60 days in the year.
The property is uninhabitable for at least 120 days in the year due to ongoing major renovations. This exemption is only available once every 10 years.
Exemption Due to Occupant of the Property
Affected owners may be exempt from paying the UHT if the property was:
the primary place of residence for the year of: o the individual, o their spouse, or o their child attending a designated learning institution
occupied by one of the following individuals continuously for a monthly, and for a total of 180 days in the year: o an unrelated individual with a written lease agreement o a related individual o the owner or their spouse or common-law partner, while the individual is in Canada for work, and the occupancy is related to the work o the owner, their spouse, parent, or child who is a Canadian citizen or permanent resident
Exemption Due to Location and Use of the Property
Affected owners may be exempt from paying the UHT if the vacation property is located in an eligible area (certain rural areas) and used by the owner or their spouse for a period of at least 28 days in the year.
e.g. Examples include: Canmore, Rocky Mountain House, Hay Lakes, and Kananaskis.
Please confirm your property address with the CRA’s property designation tool and do not rely solely on these examples for your tax filing purposes.
Kelvin Leung is a certified CPA and CMA with more than 18 years of experience in the accounting industry. As the President of Clearly Financials, Kelvin has a proven track record of empowering small businesses and individuals to achieve their financial goals. With a client-focused approach, Kelvin works closely with his clients to improve their efficiencies and profitability, guiding them to understand their numbers in a meaningful way and helping them get the most out of their businesses. Trust Kelvin's expertise to provide you with cloud-enhanced accounting and corporate tax services that meet your unique needs.
Clearly Financials offers cloud-based accounting and corporate tax services to small businesses in Edmonton, AB. We provide a full suite of services including: bookkeeping, payroll, GST filing, compiled financial statements, and corporate tax returns all designed to help your business succeed.
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Our office is conveniently located in the heart of Old Strathcona, and we offer easy online scheduling so you can book an appointment at your convenience.
Whether you're just starting out or you're looking to take your business to the next level, Clearly Financials is here to help. Contact us today to learn more.
Disclaimer
The information provided in this blog post is a simplified overview of complex matters and may not cover all the nuances of your particular accounting or tax situation. The content is intended for general educational purposes only and should not be taken as legal or financial advice. We strongly recommend consulting with a qualified professional before making any financial decisions based on the information provided. Please note that tax laws and regulations can change frequently, and we cannot guarantee the accuracy or completeness of the information provided in this post.