Underused Housing Tax Act: Residential Property Owner Reporting Obligations
Published:
January 19, 2023
Author(s):
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:
- $5,000 if the owner is an individual or $10,000 if the owner is not an individual (for example, is a corporation or other entity not excluded by the Act).
- The total of 5% of the Underused Housing Tax applicable in respect of the owner’s interest in the property for the calendar year, and 3% of the Underused Housing Tax applicable in respect of the owner’s interest in the property for the calendar year for each calendar month the declaration is past due.
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:
- The owner owns the residential property solely in their capacity as either a partner of a partnership that is a “specified Canadian partnership” as defined in the Act, or a trustee of a trust that is a “specified Canadian trust” as defined in the Act.
- The owner is a “specified Canadian corporation” as defined in the Act.
- The residential property is not suited for year-round use as a place of residence.
- The residential property is uninhabitable for at least 60 consecutive days in the applicable taxation year due to a disaster or hazardous condition caused by circumstances beyond an owner’s reasonable control.
- The dwelling unit is uninhabitable for a period of at least 120 consecutive days in the applicable taxation calendar year as a result of renovations without unreasonable delays.
- The taxpayer becomes an owner of the residential property and was never an owner of any residential property in the nine years prior to the applicable taxation year.
- The owner died during the applicable taxation year or the prior year.
- The owner is the personal representative of a deceased, the deceased owned the residential property during the applicable taxation year or the prior year, and the owner was not otherwise an owner of the residential property in either of those calendar years.
- The taxpayer owned the residential property at the time another owner died in that taxation year or the prior calendar year and that taxpayer’s ownership was 25% or more of the residential property at the time of the death.
- Construction of the residential property is not “substantially completed” before April of the calendar year to which taxes would apply. The Act does not define “substantially completed”. However, courts have defined “substantially completed” in the context of other tax legislation respecting the taxation of property as being capable of use for the purpose for which it was constructed. It is therefore likely that courts will similarly define “substantially completed” for the purposes of the Act as being capable of being a residential property.
- The property was “substantially completed” after March of the applicable taxation year, offered for sale to the public during the calendar year, and has never been occupied by an individual as a place of residence.
- The property is located in an area and in a condition prescribed in the Act.
- The property is the primary place of residence exceeding occupancy of 179 days in the applicable taxation year.
Declaration Content. The declaration must include information about the owner and the property, including:
- The calendar year to which the declaration relates.
- The civic address of the property and other property-related information.
- The owner’s legal name.
- The owner’s contact information.
- The type of owner (for example, individual other than as a partner of a partnership or trustee of a trust, corporation, partner of a partnership, trustee of a trust).
- The owner’s interest in the property (as a percentage), and if the interest is less than 100%, then the form of ownership (joint tenant(s) or tenants-in-common) and the names of any other owners of the property with an interest of 10% or more.
- The type of residential property (for example, detached home, semi-detached home, row-house unit, residential condominium unit, duplex, triplex, and so on).
- The property’s specified value and how it was determined.
- The exemptions claimed in respect of the property and information related to any exemptions.
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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