Understanding Canada’s Underused Housing Tax Act

As a part of the 2021 Federal Budget, the Government of Canada announced its intention to implement a national one percent annual tax on the value of residential real estate owned by any non-resident, non-Canadian that is considered vacant or underused. To this end, the Underused Housing Tax Act (the Act) was enacted on June 9, 2022 and will apply to residential properties owned on December 31, 2022.  

Unless an exemption is available, the UHT applies to residential properties located in Canada. A residential property includes a detached house, containing no more than three dwelling units, and including the land subjacent that is reasonably necessary for its use and enjoyment. 

The UHT Act establishes rules under which one percent Underused Housing Tax (UHT) on that property for the year, based on the property’s value and the owner’s proportionate interest in the property.

Some exceptions to the properties applied:

(1) owner’s principal place of residence

(2) property with a qualified occupancy (see definition below) of more than 180 days during the year are exempt.

3) property owned by a corporation with foreign owners who hold less than 10% of the corporation’s votes and value.

The return must be submitted by April 30 of the next calendar year, and any UHT owed to the CRA must likewise be paid by this date. Unfortunately, several elements remain unsolved, such as the needed form and manner for the yearly reporting, which has yet to be determined. The federal government’s objective with the UHTA is to curb real estate speculation. The stated purpose for introducing a national underused housing tax was to ensure that nonresident owners (who are using Canada as a place to passively store their wealth in housing) should pay their fair share of taxes.

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