Most foreign individuals, companies and other entities that own residential properties in Canada must now file a return even if no tax is due. This is one of the requirements of the new “Underused Housing Tax Act” (“UHT”) effective for the calendar year 2022.
The Act requires , among others, non-resident individuals and trusts, partnerships and unlisted companies to pay an annual one percent tax on the value of “vacant or underused” residential property located in Canada and owned by individuals who are neither citizens nor permanent residents of Canada.
“Residential property” includes, among other things, detached houses, duplexes, triplexes, row-house units or townhouses, residential condominium units, cottages, cabins or chalets used for non-commercial purposes.
Owners are classified by the CRA (Canada Revenue Agency) as “affected” and “excluded”. An “affected owner” of residential property includes a person who is identified as the legal-registered owner in the land registry system where that property is located, or who could reasonably be considered as the owner based on the registry system. Note that the registered owner does not necessarily coincides with the beneficial owner. Affected owners also include any person who holds the legal title to the property as a nominee.
All owners who are “affected” (other than “excluded” ones, see below) are required to file a return (the “UHT return”) for each residential property that such person owns in Canada as at December 31 of each year. Such affected owners must also pay the UHT unless their ownership qualifies for a calendar year exemption.
Even if an affected owner qualifies for an exemption though, he or she must still file the UHT return. The exemption may be based on:
When ownership of a residential property is shared by two or more affected owners, each of them must file a separate UHT return (provided that his/her/its interest is more than 10%).
The deadline for both filing the return and paying the tax (if any) are fast-approaching: in both cases it is April 30, 2023. In order to do so, owners will need to obtain a Canadian business or tax identification number and register for a program account with the Canada Revenue Agency prior to filing.
There are significant penalties for failing to file a UHT return when it is due. Affected owners who are individuals are subject to a minimum penalty of CAD 5,000; the minimum penalty for legal persons in raised to CAD 10,000.
The following persons are instead classified as “excluded owners” and as such do not have any obligation nor liability: citizens or permanent residents of Canada (unless included in the list of affected owners), trustees of mutual fund trusts, real estate investment trusts or specified investment flow-through trusts (SIFT) for Canadian income tax purposes, Canadian corporations whose shares are listed on a Canadian stock exchange, registered charities, Indigenous governing bodies or corporations wholly owned by Indigenous governing bodies, cooperative housing corporation for Canadian tax purposes.