What to Know About the Underused Housing Tax

Note: The 2025 Federal Budget repealed the Underused Housing Tax (“UHT”).
The elimination of the UHT for calendar 2025 and onward removes any obligation for non-resident, non-Canadian owners of vacant or underused residential real estate to pay a one percent annual tax. Removal of the UHT may increase the willingness of employees to relocate from Canada to another country.

We have a housing issue in Canada. Simply put, there aren't enough homes for Canadians who need them. That's where the Underused Housing Tax (UHT) comes in. The UHT is an annual federal tax placed on vacant or underused housing across Canada.

The UHT applies mostly to non-resident and non-Canadian owners, but it may also apply to Canadian owners in certain situations. Read on to learn more about the UHT and how it could affect you.

What is the Underused Housing Tax?

The UHT is a 1% tax, based on the values of residential property in Canada that are considered to be vacant or underused.

It's designed to encourage homeowners who have properties they're not using to put their houses on the market and make them available for others to use. The UHT is part of the Underused Housing Tax Act and took effect on January 1, 2022.

There is an annual filing requirement and a potential tax liability, depending on whether you are an "excluded owner" or an "affected owner."

Who is and is not exempt from the Underused Housing Tax?

Based on the type of residential property owner you are, you may not have a UHT filing obligation when you file your taxes. Let's look at the difference between excluded owners and affected owners.

Excluded owners

If you are an excluded owner, you do not have to file a UHT return or pay the UHT tax.

Common excluded owners are:

• Canadian citizens or permanent residents of Canada (not partnerships or trusts).
• Canadian corporations listed on the Canadian TSE 300.
• Registered charities, municipalities, Indigenous groups/corporations, cooperative housing, etc.

Generally, most Canadian citizens or permanent residents who own a home and are not part of a partnership or trust are excluded owners and do not have to file a UHT return or pay any UHT tax.

Affected owners

Affected owners are non-Canadian owners who own vacant or underused residential properties. If you are an affected owner, you are required to file a UHT return for each property you own.

However, you may not have to pay the tax due to certain exemptions. For example, you may be exempt if your property is a vacation property located in an eligible area of Canada. Use the CRA's online tool to learn whether this applies to your property.

Other exemptions apply if the property is:

• Your primary place of residence
• Not suitable for year-round use or seasonally inaccessible
• Uninhabitable for the calendar year
• Newly constructed

Your ownership of a residential property may also be exempt if you are:

• A partner of a specified Canadian corporation, partnership, or trust
• A new owner
• A deceased owner, a representative of a deceased owner, or a co-owner of a deceased owner

What qualifies as a residential property?

The UHT has a specific definition of a residential property, which is important to know when you're figuring out if this tax applies to you.

In this case, a residential property is limited to property that has 3 or fewer dwelling units, with a kitchen, bathroom, and a private living area. This can include a detached house or a unit that's part of a building, like a semi-detached house, row house, or condo.

How the Underused Housing Tax is calculated on a residential property

The UHT tax rate is 1%, and the tax payable is calculated by using this formula:

1% x the taxable (or assessed) value of the property x your ownership percentage of the property

If there are multiple owners, each owner is responsible for paying this tax in proportion to their ownership percentage in the property.

Here's an example:

A property is owned by 3 co-owners, each with an equal share. The assessed value of the property is $1,200,000.

The UHT is calculated as 1% of $1,200,000

$1,200,000 x 0.01 = $12,000

So, each owner will owe $4,000 each.

As an alternative to assessed value, you can also use the property's "fair market value" as determined at any point during the year and up to the UHT tax return deadline of April 30 of the following year. Note that the CRA requires an appraisal with specific parameters to determine fair market value.

How the Underused Housing Tax is different from other municipal and provincial taxes

It's easy to confuse the UHT with significant property tax increases recently introduced by several Canadian cities, including Vancouver, Toronto, and Hamilton. These municipalities implemented tax increases to tackle budget shortfalls, crumbling infrastructure, and more demand for local services.

The UHT is a federal tax. That means it's not the same as other municipal-level levies like Toronto's vacant home tax, or British Columbia's speculation and vacancy tax. If you live in one of these areas, you'll need to file returns separately for these programs.

Note that the UHT return is also filed separately from your personal tax, corporate tax, or partnership returns.

How to file the Underused Housing Tax

You can file the UHT return for each property that does not meet one of the exemptions using Form UHT 2900 either online or by mailing a paper return. You'll need your Social Insurance Number (SIN) or an individual tax number (ITN) to file your returns. Businesses require a business number and an Underused Housing Tax program account to file their returns and make tax payments.

You'll need to complete the following information:

• Address
• Property identification number (according to the land registry office)
• Type of property
• What your ownership is in the property as well as the percentage of ownership
• The assessed value of the property or the most recent sale price

You must file before the Underused Housing Tax deadline of April 30 each year. If that falls on a weekend, the return is due the next business day.

What happens if I don't file an Underused Housing Tax return?

Even if you are exempt from paying the tax, if you are an affected owner, you must still file a UHT return. Penalties for individuals and corporations for not filing, or filing late, can be substantial:

• Individual — $1,000 minimum penalty
• Corporation —$2,000 minimum penalty

What's next for the Underused Housing Tax?

Although the UHT came into effect on January 1, 2022, future changes and adjustments are likely. If you're an affected owner now, make sure you stay on top of any updates and talk to your tax expert to find out how future changes could affect your situation.

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