New Federal and Municipal Underused Housing and Vacancy Taxes

All residential property owners, especially those who own multiple properties or own property through a corporation or trust, must understand these new taxes and their responsibility to file, even if taxes are not owed.

First announced in the 2021 Federal Budget the Federal Underused Housing Tax (UHT) came into effect in 2022 and the UHT return will need to be filed and any UHT owed paid in 2023. The UHT imposes a tax of 1% of the value on any residential property declared as vacant and owned by any non-resident, non-Canadian. Additionally, several major municipalities have implemented or declared their intention to implement an additional housing tax. The Federal UHT is convoluted at best, and if you are an owner of residential property in addition to your primary residence, especially if owned by a trust or corporation, customized tax advice from the experts at Bateman MacKay is highly recommended to avoid potential penalties, contact us for help.

Federal Underused Housing Tax Act

The Federal Government has implemented an annual tax on residential real estate owned by any non-resident, non-Canadian that is considered vacant or underused. While the wording of this portion of the Income Tax Act (“the Act”) is rather obscure, most Canadian citizens or permanent residents who own a primary residence or rent out other properties for the majority of the year will not need to pay this tax.  Although, they may still be required to file a UHT return. Instead of declaring who must file a return, the Act states that all owners, other than excluded owners, must file a return.

An excluded owner is defined to include the following as of December 31 of the particular calendar year:

  • An individual Canadian Citizen or permanent resident of Canada
  • A publically traded Canadian corporation
  • A person with title to property in their capacity of trustees
  • A registered charity
  • A cooperative housing corporation
  • Municipal organizations or other public institutions and government bodies

Notably, the above list does not include private corporations, partnerships and trusts that are residents of Canada. As such, these entities are required to file an annual return if they own residential property in Canada on December 31 of the particular calendar year.

Specified Canadian Corporations, Trusts and Partnerships

In our year-end tax planner, we originally stated that properties owned through a corporation or trust must pay the UHT. The planner has been updated to now state that residential properties owned through a corporation, trust or partnership must file a UHT return, but may not be required to pay the tax.

No UHT is payable by a specified Canadian corporation, which is any corporation incorporated within Canada, unless one of the following applies:

  • An individual who is not a Canadian citizen or permanent resident, or a corporation that is incorporated or continued outside of Canada (individually or combined) have ownership and control of at least 10 percent of the shares of the corporation representing both value and voting rights.
  • If a corporation does not have share capital, the chairperson or other presiding officer is neither a citizen nor a permanent resident, or at least 10 percent of its directors are not Canadian citizens or permanent residents.

If a residential property is owned by a trust or partnership, no UHT is payable if:

  • Each member in a Partnership that meets the definition of an excluded owner or a specified Canadian corporation on December 31 of the particular year
  • A Trust where each beneficiary with a beneficial interest in the residential property owned by the trust meets the definition of an excluded owner or specified Canadian corporation on December 31 of the particular year

Situational Exemptions

If an owner is not an excluded owner, specified Canadian corporation, specified Canadian partnership or specified Canadian trust, they may be exempt from the UHT if it is the owner’s primary residence, or a child of the owner who occupies the property for authorized study at an institution designated to host international students.  In the event the owner and their spouse own multiple residential properties, an election is to be filed to designate which property is the primary residence.

Additionally, if the property is occupied by a qualifying individual (list below) in periods of at least one month that total at least 180 days of the year, no tax is payable:

  • An individual who is a spouse, common-law partner, parent or child of the owner and is a citizen or permanent resident
  • An individual who deals at arm’s length with the owner and any spouse or common-law partner of the owner, under an agreement in writing
  • An individual who does not deal at arm’s length with the owner and is given continuous occupancy of the dwelling unit in writing and pays fair rent for the property
  • An individual who is the owner’s spouse or common-law partner who is in Canada for the purpose of pursuing authorized work under a Canadian work permit and occupies the dwelling unit in relation to that purpose

There are numerous other specific situations that may exempt a property from the UHT such as:

  • Year of acquisition
  • Death of the owner
  • Limited seasonal access (non-winterized properties or seasonally inaccessible)
  • Uninhabitable properties due to renovation or hazardous condition
  • Recreational properties in less densely populated areas

For further details about these additional situational exemptions, please contact your Bateman MacKay business advisor.  

Penalties and Deadlines

The UHT, along with any returns or elections, will be due on April 30th of the following year. (i.e. payments for 2022 will be due April 30, 2023). The penalty for failing to file a declaration when required is the greater of: $5,000 (for an individual), $10,000 (for all other entities) or 5% of the UHT plus 3% of the UHT for each month the return is late and there is a balance that remains outstanding. Additionally, certain exemptions may no longer be available to the owner if they do not file the annual UHT return and any applicable elections by the April 30th deadline. As such, it is imperative for UHT return filings, elections and payments to be completed prior to the April 30th deadline.

Municipal Vacant Taxes

In addition to the Federal UHT, the following municipalities have also implemented or are considering implementing a vacant residential property tax. Similar exemptions to the Federal UHT exist, but in most cases, all residential homeowners must file a return. If you own a residential property that is not a primary residence in one of these municipalities, you must understand your filing and potential tax requirements.

TorontoEvery residential homeowner must file and potentially pay the Vacancy Home Tax annual return1% of the Current Value Assessment of the propertyReturn due the following February 1 of the particular calendar year. Payment due May 1 following the receipt of a Vacant Home Tax Notice in March/April.
OttawaEvery residential homeowner is required to file and potentially pay a Vacant Unit Tax annual return1% of the property’s assessed value.The following Third Thursday of March of the particular calendar year. Payment due the third Thursday of June following an Assessment.
VancouverA declaration and potential payment for the Empty Homes Tax annual return.3% of the property’s assessed taxable value (increases to 5% for 2023’s assessment year)Mid-April following an Assessment.
HamiltonHas approved a Vacant Home Tax effective 2023 (first filing would occur in 2024)
Peel RegionIs currently evaluating a potential Vacant Home Tax

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