CANADA’S UNDERUSED HOUSING TAX ACT

For these purposes, residential properties include, but are not limited to, detached houses, semi-detached houses, rowhouse units and condominium units situated in Canada.

The owner of a residential property for purposes of the UHT Act is the registered owner of the property rather than the beneficial owner. Therefore, a nominee or bare trustee that holds legal title to a residential property for the benefit of others is required to file the UHT Return.

An excluded owner is not required to file a UHT Return and is not liable to pay the UHT. An excluded owner includes:

• Canadian citizens (individuals) and permanent residents (except where the property is held by a Canadian individual as a trustee of a trust or as a partner of a partnership)
• Publicly traded Canadian corporations
• A trustee of a mutual fund trust, real estate investment trust or SIFT trust
• Registered charities, universities, hospitals
• Indigenous governing bodies.

All other owners are required to file the UHT return but may not be liable for paying UHT tax.

Although an owner may need to file a UHT Return under the UHT Act, the same owner may not be liable to pay the UHT due to certain exemptions contained in the UHT Act. These exemptions may apply depending on the type of owner, the occupant of the property, the availability of the property, or the location and use of the property.

• In addition to excluded owners, the UHT is not payable by Canadian corporations where less than 10% of the voting shares and equity value are owned by non-Canadian individuals or corporations.
• The UHT is not payable by an owner who owns the property solely in their capacity as a partner of a “specified Canadian partnership.” Specified Canadian partnership means a partnership made up entirely of excluded owners or a specified Canadian corporation. The UHT is also not payable by a person who owns the property as a trustee of a “specified Canadian trust.” Specified Canadian trust means a trust where each beneficiary who has a beneficial interest in the residential property is an excluded owner or a specified Canadian corporation.
• The UHT is also not payable by an individual who died during the calendar year or the previous year (or by their personal representative) or by a person who was a co-owner with a deceased owner.
• A person does not have to pay UHT in the year ownership of the property was acquired so long as they never owned the property in the previous nine calendar years. The person would still need to file a UHT Return in the year of acquisition.
• You will be exempt from paying the UHT if the owner of the property’s spouse, common-law partner, parent, or child is a Canadian citizen or permanent resident. Further, if the owner or owner’s spouse/common-law partner has a Canadian work permit, individuals will also be exempt from paying the UHT.

• The UHT is not payable where the property is the primary place of residence of the individual owner, their spouse or common-law partner, or their child while the child is a student.
• It is also not payable where the property is occupied for a period of at least 180 days in the calendar year by an arm’s length individual under a lease or if it is occupied by a non-arm’s length individual under a lease who pays fair rent,
• If a non-Canadian individual, together with their non-Canadian spouse or common-law partner, own multiple residential properties, then they will be exempt from paying the UHT on the single property they designate as a primary place of residence or occupied by an arms-length individual or individual who pays rent under a lease. For the other properties, however, UHT still may be payable.

• The UHT is not payable if the property is not suitable for year-round use as a place of residence or where it is seasonably inaccessible because public access is not maintained year-round. It is also not payable where the property is under renovations for a period of at least 120 consecutive days in the calendar year, or where a natural disaster or hazardous condition renders the property uninhabitable for a period of at least 60 consecutive days in the calendar year.
• In the case of newly constructed properties, the UHT is not payable if construction of the property is not substantially completed before April of the calendar year. If the property is constructed in the first quarter of the year and it is offered for sale to the public during the year, UHT is also not payable.

The UHT is not payable if the property is located in certain prescribed areas of Canada and is used as a place of residence or lodging by the owner or the owner’s spouse or common-law partner for at least 28 days during the calendar year. Contact us to learn more about the Canadian regions exempt from UHT.

The UHT Return for a calendar year must be filed on or before April 30 of the following year.

The UHT return must include certain information, including

• The citizenship of the owner (if the owner is not a Canadian citizen or permanent resident)
• The address and type of residential property
• The names and ownership percentages of other co-owners of the property
• The applicability of any statutory exemptions from the payment of the UHT

The UHT is calculated at the rate of 1% on the taxable value of the property, which is generally the greater of (a) its value as assessed by a government agency (property taxes); and (b) the property’s most recent sale price on or before December 31 of the calendar year. An owner also may elect to use the fair market value of the property at any time on or after January 1 of the calendar year and on or before April 30 of the following calendar year. The fair market value must be supported by an appraisal which is to be provided to the Canada Revenue Agency upon their request.