Initially proposed during the 2021 Federal Budget, the Underused Housing Tax (“UHT”) and the commentary around it has continued to evolve over recent months. Intended as a tax on vacant or underused housing in Canada owned by non-residents, the UHT has attracted a lot of additional attention primarily due to its wide-reaching filing requirements and severe late filing penalties.
In our previous blog, we shared information regarding excluded owners, exemptions from paying taxes and penalties for not filing or paying UHT. This updated blog summarizes some of the welcome changes announced in recent months.
2022 Penalty and Interest Relief
On October 31, 2023, the Minister of National Revenue announced that owners affected by the UHT will have until April 30, 2024, to file their returns for the 2022 calendar year without being charged penalties or interest. Please note this will coincide with the due date for the 2023 calendar year, so both the 2022 and 2023 UHT return must be filed by April 30, 2024. You can read the full details shared by Canada Revenue Agency here.
This is the second extension of its kind, where it was initially announced that penalties and interest would be relieved for 2022 for returns filed by October 31, 2023 (originally April 30, 2023). Please, note that this announcement does not actually extend the due date to file the return, it only allows relief from penalties and interest up until April 30, 2024.
Expanded Definition of Excluded Owner
On November 21, 2023, Canada’s Finance Minister introduced the 2023 Fall Economic Update, which included several proposed changes to tax policy. Most notably, the application of this proposal should limit the filing requirement to a smaller number of situations, as excluded owners should not be required to file UHT returns.
The following groups are proposed to be included in the definition of excluded owner, which should alleviate potential filing requirements for many Canadians.
- Specified Canadian corporations,
- which is generally a Canadian corporation having less than 10 per cent of its votes or equity value owned by foreign individuals or corporations;
- Partners of specified Canadian partnerships,
- which is generally a partnership whose partners are exclusively Canadian;
- Trustees of specified Canadian trusts,
- which is generally a trust whose beneficiaries are exclusively Canadian.
Please note the above changes are proposed to become effective for the 2023 calendar year and as a result, may not apply to the 2022 calendar year.
Other Technical Changes
In addition, the following changes were proposed:
- Introduction of a new UHT exemption for residential properties held as a place of residence or lodging for employees. This exemption would be available in respect of residential properties located anywhere in Canada other than in a population centre having 30,000 or more residents, effective in respect of 2023 and subsequent calendar years;
- Unitized (‘condominiumized’) apartment buildings are not “residential property” for UHT purposes, effective in respect of 2022 and subsequent calendar years; and,
- Limitation that an individual or a spousal unit can claim the UHT “vacation property” exemption for only one residential property for a calendar year, effective in respect of 2024 and subsequent calendar years.
Reduced Failure to File Penalties
Also announced as part of the 2023 Fall Economic Statement, the minimum late filing penalty is proposed to be reduced to:
- $1,000 for individuals (previously $5,000)
- $2,000 for corporations (previously $10,000)
To ensure you are in compliance with the Underused Housing Tax, please contact your RLB advisor.
