Under the C-8 Act, the Government has implemented a 1% annual tax on the fair market value of “underused residential property” owned by non-resident, non-Canadians. For instance, a home bought for $1,700,000 in 2018 with a current fair market value of $2,000,000 will incur a $20,000 tax.
The property owner is responsible for UHT based on their ownership interest. Canadian citizens and permanent residents are excluded. Residential property includes various types of homes. Affected owners include non-resident individuals who are not citizens or permanent residents, Canadian corporations (even with Canadian shareholders), foreign corporations, partnerships, trusts, and trustees. Excluded owners include Canadian citizens, publicly-listed corporations on Canadian stock exchanges, registered charities, cooperative housing corporations, indigenous governing bodies and their owned corporations, municipalities, the Government of Canada and its appointed agents, provincial governments and their appointed agents, and public service bodies like hospitals and schools.
Canadian corporations that are not publicly-listed on a Canadian exchange, Canadian trusts, and partnerships are NOT considered “excluded owners” and are subject to the provisions of the Act.
In certain circumstances, owners who are not “excluded owners” are exempt from the provisions of the Act if the property:
was rented under a written agreement for at least six months to an unrelated tenant is used by the owner for at least one month while they are in Canada for work is used by the owner’s spouse or children as their primary residence is owned by a corporation where at least 90% of the shares are owned by Canadian citizens or permanent residents is owned by a specified Canadian partnership where every member is an “excluded owner” is owned by a specified Canadian trust where every person with a beneficial interest is an “excluded owner” was uninhabitable for at least 60 days during the calendar year due to a disaster or hazardous conditions is not suitable for year-round use and is uninhabitable or inaccessible for part of the year due to weather is undergoing major renovations and is uninhabitable for at least 4 months (120 days) is vacant due to the death of the owner is newly constructed and was not substantially completed before April 1 of the calendar year
Owners, excluding “excluded owners,” must submit a Form UHT-2900 – Underused Housing Tax Return and Election to the Canada Revenue Agency (CRA) by April 30th of the following year. For instance, the UHT annual returns for calendar year 2023 must be filed by April 30, 2024. Owners must include the following information in their declaration: the calendar year, legal name, contact information, owner type (e.g., individual, partnership, corporation), civic address, other property details, percentage interest in the property, fair-market value (FMV) of the property, and the Underused Housing Tax owed, calculated as FMV multiplied by % Ownership multiplied by 1%.
If the owner fails to file the declaration by April 30th of the following calendar year, severe penalties will apply. The owner will be liable for a penalty of either $5,000 (if an individual) or $10,000 (if not an individual), regardless of whether any UHT is owed. Additionally, the penalty will be calculated as 5% of the UHT applicable to the owner’s interest in the property for the calendar year, plus an additional 3% for each calendar month the declaration is overdue.
Examples of buildings that are not residential properties
The following are examples of buildings, premises and structures that are not residential properties for purposes of the underused housing tax:
- quadruplexes (buildings that have four dwelling units)
- high-rise apartment buildings
- buildings that are primarily (more than 50%) for retail or office use and that contain an apartment
- commercial condominium units
- boarding houses and lodging houses
- commercial cottages, cabins and chalets (that is, those that are used by the operator of an establishment to provide lodging to several unrelated business or leisure travellers at once in separate cottages, cabins or chalets)
- hotels, motels, inns, and bed and breakfasts
- floating homes
- mobile homes
- park model trailers
- travel trailers, motor homes and camping trailers