October 5, 2023 - CCI-Nova Scotia Chapter News

Understanding the Underused Housing Tax (UHT) Step by Step

In our previous news flash we gave you a quick synopsis of the UHT, stating that many of our condo corporations will need to file.   As the rules are extensive and complex, this narrative is meant to help navigate the UHT from the perspective of a typical condominium corporation.

What is the UHT?

The UHT imposes a 1% annual tax on the value of residential real estate considered to be vacant or unused that is owned on December 31st of each year.   The scope and filing requirements extend to many Canadian entities and individuals than originally anticipated.  As the rules are extensive and complex this narrative is meant to help navigate the UHT from the perspective of a typical condominium corporation.   Each set of facts is different so professional advice should be sought to determine the filing requirements for your corporation.   This material is meant to only to be used as a general guide.  All detailed information can be found on the Canada Revenue Agency (“CRA”) website.

Why is it important to assess your filing obligations under the UHT?

Determining and meeting the filing requirements under the UHT is important for your corporation as there are significant penalties for failure to file ($10,000 for corporations). 

Does the UHT apply to my corporation?

Step #1 – Do I own a residential property?

The first step is to determine if you are subject to the UHT Rules.  In order to fall under these rules you should consider if you are the legal owner, jointly or otherwise, of a residential property in Canada as of December 31st

What is a residential property?  Generally, a residential property is either of the following: (1) a detached house or similar building that contains not more than three dwelling units or (2) a semi-detached house, rowhouse unit, residential condominium unit or other similar premises, along with any common areas, appurtenances, and the related land.  A dwelling unit is a residential unit that contains private kitchen facilities, a private bath, and a private living area.

In the case of a condominium corporation, a superintendent unit or guest suite could meet the definition of a residential unit.

Step #2 – Do I have to file a UHT form?

If you determine you are the owner of a residential property, the next step is to determine if you are required to file an annual return.  In order to do this, you must consider if you meet the definition of an excluded owner, as excluded owners have no filing requirements under the UHT.

What is an excluded owner?  Excluded owners include:

  • Canadian citizens or permanent residents (excluding individuals that hold the interest in the property as a partner of the partnership or as a trustee of a trust)
  • Corporations that are incorporated under the laws of Canada or a province and listed on a Canadian stock exchange (i.e. does not include private corporations)
  • Registered charities
  • Co-operative housing corporations
  • Municipalies, Indigenous governing bodies, or corporations owned by such entities
  • Government of Canada and government of a province or an agent of either
  • Various forms of publicly traded trusts
  • Certain other public service bodies

With respect to a typical condominium corporation it would appear it does not meet the definition of an excluded owner so the corporation would have filing requirements under the UHT.

Step #3 – Do I have to pay the tax?

Once you have determined you have to file the UHT return, the next step is determining if you are required to pay the related tax.

There are four broad categories of exemptions. If you meet one of the many exemptions within each of these categories, no tax will be payable when you file your return:

  • Type of owner of the property
  • Availability of the property
  • Occupant of the property
  • Location and use of the property

In applying these categories to a typical condominium corporation it appears there are potentially two categories where the exemption could be met:  type of owner of the property and occupant of the property. 

Type of owner of the property

One exemption under this category is a specified Canadian Corporation.  A specified Canadian corporation is a corporation that is incorporated or continued under the laws of Canada or a province and, on December 31 of the calendar year is NEITHER of the two following corporations: (1) a corporation where more than 10% of the votes or value is owned or controlled, directly or indirectly by an individual that is neither a citizen nor a permanent resident or (2) a corporation without share capital having either a chairperson or other presiding officer who is neither a citizen or a permanent resident or having 10% or more of its directors who are neither citizens nor permanent residents.

Occupant of the Property

One exemption under the category is if an arm’s length individual occupies the property, under a written agreement, continuously for a period of at least a month for a total of at least 180 days in the year. 

Only one exemption is needed to eliminate the requirement to pay the tax.  It is important to note that although you may be exempt from paying the tax, it does not eliminate the requirement to file the return as determined under Step #2.

Step #4 – Preparing the Return

Based on the analysis completed above, the UHT return should be completed and filed with the CRA.  The UHT is reported on Form UHT-2900E  “Underused Housing Tax Return and Election Form” which can be found on the CRA website.  In order to file the form, corporations have to obtain a BN-RU number from the CRA which is reported on the return.  This number must be obtained before a return can be filed.  The UHT return can be filed online through the CRA website, uploaded through My Business Account, or mailed/faxed to CRA’s Sudbury Tax Centre.

What is the filing deadline for the UHT returns?

The returns for calendar 2022 are due on October 31, 2023.  Going forward the annual filing deadline will be April 30th.

Reference: https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax/who-file-pay.html#exempttax-corp

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