January 19, 2023
We updated this publication on March 29, 2023.
Beginning April 30, 2023, both Canadian and non-Canadian trustees, partners of a partnership, private corporations, and non-Canadians, that own residential property in Canada are required to annually report and pay taxes owed under Canada’s new Underused Housing Tax Act, or face significant exposure to both non-compliance penalties and interest. However, for the 2022 taxation year only, the Canada Revenue Agency (CRA) has waived the penalty and interest for late reporting & tax payments to October 31, 2023. Intended to target vacant or underused residential property owned by non-resident, non-Canadians, the Act took effect on January 1, 2022 and imposes an annual 1% tax on the value of residential real estate – whether or not it is vacant or underused – the Act in fact imposes a reporting requirement on a much broader group of owners than initially understood. Affected owners of residential real estate covered by the Underused Housing Tax Act must file a declaration in respect of the property for a specific calendar year on or before April 30 of the following calendar year – even if no tax is payable for the year. Any taxes payable are due on or before April 30 of the following calendar year. Affected owners must now file the required declaration annually and assess, on an annual calendar year basis, whether they satisfy any available exemptions from the tax.
Here is a snapshot of the non-compliance penalties, excluded owners and content of the required declaration under the Underused Housing Tax Act.
Non-Compliance Penalties. The consequences of failing to file a declaration at all or on time, unless the Minister allows a later date under subsection 6(5) of the Act, are significant. An owner of residential property covered by the Act is required to file a declaration in respect of the property for a specific calendar year on or before April 30 of the following calendar year. Failure to comply with this requirement exposes those owners to liability for a penalty equal to the aggregate of:
For example, a Canadian construction (or any kind of) private corporation that owns 10 homes, vacant or not, on December 31, 2022 is required to file 10 declarations (Form UHT-2900) by April 30, 2023. Failure to do so exposes the corporate owner to a minimum fine of $10,000 per property – a total exceeding $100,000 depending on the value of each property and reporting time.
Excluded Owners. Excluded owners, as defined under section 2 of the Underused Housing Tax Act, are not required to report or pay tax. Generally, excluded owners are Canadian citizens or permanent residents, publicly traded corporations or trusts, registered charities and other prescribed entities. Therefore, non-Canadian citizens (with the exception of permanent residents), trustees of a private trust (with the exception of a personal representative of a deceased), partners of a partnership, or privately held corporations, are all required to report, even when no tax is payable under the Act. Subsections 6(7), 6(8) and 6(9) of the Underused Housing Tax Act does, however, provide that certain owners are exempted from paying tax for a taxation year – but not from filing the declaration – including where:
Declaration Content. The declaration must include information about the owner and the property, including:
Please contact your McInnes Cooper lawyer or any member of our Tax Solutions Team @ McInnes Cooper to discuss compliance with your reporting and tax obligations under the Underused Housing Tax Act.
McInnes Cooper has prepared this document for information only; it is not intended to be legal advice. You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.
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