Some of you may remember our newsletter from last March, when we asked all owners of Canadian residential property to pay close attention to a new Federal vacancy tax with an April 30th filing deadline. This “Underused Housing Tax” (UHT) had created tax filing requirements for far more property owners than many realized. It also threatened truly severe penalties for anyone failing to file a return: $5,000 for individuals and $10,000 for corporations.
After public outcry and lobbying by groups like CPA Canada, our government announced a one-time extension to the UHT filing deadline. For just the first year (calendar 2022), UHT returns could be filed by October 31, 2023 without incurring late-filing penalties. Of course, we would have preferred a permanent change, but this was better than nothing.
Fast forward to today, and that grace period is nearly over. If you are required to file a UHT return, please plan to have it submitted by the end of this month (October 2023)!
Going forward, keep in mind this was only a one-time extension. All subsequent UHT filings remain due on April 30th (i.e., the UHT return for calendar 2023 is due April 30, 2024, and so on).
For those who missed our original newsletter, or for anyone who could use a refresher, please read on! The following is our original March newsletter, mostly the same as before, but with a few important updates.
A New April 30th October 31st Deadline: The Underused Housing Tax
While vacancy taxes are nothing new for B.C. property owners, a new federal version of the tax is catching many by surprise. The new “Underused Housing Tax” (UHT) was designed to tax foreign owners of Canadian residential properties deemed to be ‘underused’ or vacant. That said, it is not just foreign owners who need to file a UHT return! And this isn’t a return you want to file late – the penalties are some of the highest we have ever seen.
Excluded Owners – who doesn’t have to file a UHT return?
Thankfully, the UHT filing obligations do exclude some residential property owners. If you fall into any of the following categories, you are considered an Excluded Owner and do not have to file a UHT return:
- Individuals who are either permanent residents of Canada or Canadian citizens
- Citizens and permanent residents who own properties through a REIT, SIFT, or mutual fund trust
- Public Canadian corporations, with stock listed on a designated stock exchange
- Registered Canadian charities
- Coop housing corporations
- Indigenous governing bodies
Affected Owners – who does have to file a UHT return?
If you were the registered owner (on title) of Canadian residential property in 2022 and don’t fall into one of the excluded categories mentioned above, you are considered an Affected Owner. All Affected Owners will need to file a UHT return by October 31st, 2023 – even if no tax is owing. Affected owners include, but are not limited to:
- Individuals who are not permanent residents of Canada or Canadian citizens
- Canadian controlled private corporations (CCPCs) * this includes most small business corporations, professional corporations, holding companies, and numbered companies
- Non-Canadian corporations
- Anyone who owns residential property as a partner of a partnership or a trustee of a trust (other than a representative of a deceased individual)
Please note that you may own property as a trustee of a trust without realizing it. Individuals who jointly own residential property for estate planning purposes can sometimes be considered a trust, and therefore an affected owner. A common example of this is when a parent adds their child’s name to title in an effort to streamline the inheritance process.
Who has to pay the tax?
For those required to file a UHT return, many will be exempt from paying tax. At last count there were 19 different exemptions available. These include exemptions for:
- Properties that are the primary residence of either the owner, their spouse, or their children
- Properties that are occupied for periods of over one month at a time and for at least 180 days of the calendar year, by tenants for who pay rent at fair market rates (many short-term rentals will not qualify for this exemption)
- Properties owned through a Canadian trust or Canadian partnership, as long as each trustee or partner is a permanent resident or Canadian Citizen
- Properties owned by Canadian corporations, as long as no more than 10% of the shares are owned by non-permanent resident or non-Canadian citizens.
- Properties that are seasonally inaccessible, uninhabitable for a period of at least 60 consecutive days due to disaster, or for a period of at least 120 days due to renovations
- The first year a property is purchased
- Properties that still require significant construction before being considered complete
- Properties in certain areas with lower population (check here: Vacation property designation tool)
How much tax?
For Affected Users who don’t qualify for an exemption, taxes are 1% of the property value. UHT considers your property value to be the higher of either:
- The assessed value on your most recent (2022) property tax notice, or
- If the property was sold in 2022, the sales price
I qualify for an exemption – why should I file this?
Penalties for not filing a return by the extended October 31, 2023 due date are very steep, even when no taxes are payable. An owner who fails to file a return by October 31, 2023 can be charged a minimum penalty of:
- $5,000 for property owners who are individuals
- $10,000 for property owners who are corporations
In addition to this, property owners who still haven’t filed a return by December 30th can have their exemptions denied. This would leave an otherwise tax-exempt owner stuck with the penalty listed above PLUS a UHT tax bill of 1% of their property value.
If you own Canadian residential property and do not fall into one of the excluded categories listed above, please plan on filing an Underused Housing Tax return (one for each property) by no later than October 31, 2023 (and then April 30th of each year going forward). The penalties for missing the filing deadline are significant! If you do not have a Canadian tax ID number, you will need to get started on your return ASAP, since you will need to register for an ID.
- The tax return itself can be downloaded here: UHT Return
- Returns can be filed:
- See if your property is in an exempt area: Vacation property designation tool
- For a deeper dive: start with this page
- Of course, if you do have questions that are beyond the scope of this newsletter, give us a call!