Underused housing tax program: Consideration for Canadian Corporations, partnerships, and trusts | Sponsored by BDO’s Scott Conner

In the 2021 Federal Budget, a new tax was proposed under the description Tax on Unproductive Use of Canadian Housing by Foreign Non-resident Owners. As originally described, this was to be a one-percent tax on the value of Canadian residential real estate owned by non-residents of Canada considered to be vacant or underused, levied annually beginning in 2022.

However, the enacted legislation contained in the Underused Housing Tax (UHT) Act, provides that certain Canadian taxpayers, notably Canadian corporations, partners of Canadian partnerships and Canadian trusts that own Canadian residential property (a defined term under the UHT Act), will need to apply for an exemption from this tax in a UHT return, or face a penalty for failure to file a UHT return.

Key considerations

For shareholders of Canadian corporations who own Canadian residential real estate, review the following key points to learn more about navigating these new rules.

 1. Residential property for these purposes is real property situated in Canada that is:

• A detached house or similar building, containing not more than three dwelling units, together with the land that is reasonably necessary for its use and enjoyment as a place of residence for individuals
• A semi-detached house, rowhouse unit, residential condominium unit, or similar unit together with the land that is reasonably necessary for its use and enjoyment as a place of residence for individuals

2. A separate UHT return must be filed for each residential property where required; however, the filing requirement only applies to residential properties owned on Dec. 31 of the calendar year.

3. Many filers, such as Canadian corporations, partners of partnerships, and trusts will have no tax to pay but will need to file to claim their exemption from this tax or face a minimum late filing penalty of $10,000. 

4. The UHT return must be filed annually by April 30 of the year following the calendar year for which the return relates. The first filing deadline will be for the 2022 calendar year and will be May 1, 2023 (as April 30, 2023 falls on a Sunday). This same deadline applies for all affected entities–the filing deadline does not coincide with the entities’ fiscal year end or income tax return filing date.

Canadian residential property owners who will need to file a UHT return include:

• Canadian Corporations
• Any person–including an individual who is a Canadian citizen or permanent resident that owns a residential property as a partner of a partnership
• The trustee of a trust that owns a Canadian residential property other than an estate as referenced above under “excluded owners”
• Foreign nationals living in Canada who are not permanent residents for immigration purposes

When considering if your Canadian corporation, you as a partner of a Canadian partnership, or your Canadian trust is exempt from this new tax, it is important to remember that the purpose of the tax is to penalize non-Canadian owners of Canadian residential property that is left vacant for much of the year and is in an area of high-residential demand.  For example, a Toronto residential condominium owned by a non-citizen investor that was left vacant in 2022, but was capable of being occupied for the year, will be subject to this tax. If the value of the condominium is $800,000, a 1% tax of $8,000 will be due on April 30, 2023.

Filing the UHT return

Details for filing a return were released recently and we do know that it will be necessary to have a valid CRA tax identifier number to file a UHT return. The following tax identifier numbers may be used depending on the situation:

• Social insurance number (SIN)
• Individual Tax Number (ITN) (An ITN is a unique number provided by the CRA to individuals who aren’t eligible for a SIN. For example, this type of number would be provided, upon application, to a non-resident of Canada who doesn’t work in Canada).
• Canadian business number (BN) with an Underused Housing Tax (RU) program account identifier code (which can be applied for after Feb. 6, 2023).
• However, a trust account number (TAN) cannot be used to file UHT returns—it is the trustee that must make the filing where a trust holds property on which UHT can be levied.

How BDO can help

If you are a Canadian residential property owner, BDO can help you navigate these rules and determine whether a UHT return will be due by May 1, 2023. 

Scott Conner is an experienced tax practitioner and practical problem solver at BDO. As a partner specializing in Canadian income tax, Scott has particular specialties in private companies, planning for estates, trusts, and complex transactions. As personal tax season approaches, Scott and his team understand personal taxes are as individual as clients themselves. BDO works closely with their clients to understand their specific needs and adjust strategies accordingly. BDO partners and staff take a proactive, hands-on approach. They closely follow existing and proposed legislation to determine how it will affect individual financial goals, and provide ongoing guidance.