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.
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:
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.
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:
If a residential property is owned by a trust or partnership, no UHT is payable if:
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:
There are numerous other specific situations that may exempt a property from the UHT such as:
For further details about these additional situational exemptions, please contact your Bateman MacKay business advisor.
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.
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.
|Toronto||Every residential homeowner must file and potentially pay the Vacancy Home Tax annual return||1% of the Current Value Assessment of the property||Return 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.|
|Ottawa||Every residential homeowner is required to file and potentially pay a Vacant Unit Tax annual return||1% 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.|
|Vancouver||A 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.|
|Hamilton||Has approved a Vacant Home Tax effective 2023 (first filing would occur in 2024)|
|Peel Region||Is currently evaluating a potential Vacant Home Tax|
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