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Underused housing tax – requirements and exemptions

The federal government’s new underused housing tax (UHT) may be aimed primarily at non-residents of Canada, but others may also be caught. Find out more about the UHT and when it applies.

Updates since original posting on January 23, 2023:

February 2, 2023  – Updated to include a link to form UHT-2900, Underused Housing Tax Return and Election Form as well as other new information published by the Canada Revenue Agency.

February 9, 2023 – Updated to include new information provided by the Canada Revenue Agency included in the publication in Underused Housing Tax Notices 6 to 11. Also adds a new section, “Partnership versus co-ownership considerations”.

April 5, 2023 – Updated to include new information provided by the Canada Revenue Agency including their March 27, 2023, news release announcing administrative relief for 2022 UHT returns as well as other information included in Underused Housing Tax Notices 12 to 15.

In Budget 2021, the federal government announced plans for an annual one per cent tax on the value of residential real estate that is:

  • owned by any non-resident, non-Canadian, and,
  • considered vacant or underused.

The UHT Act was enacted on June 9, 2022, with effect from January 1, 2022. While the budget suggested that only non-residents would be affected, the scope of the final legislation is broader, as we explain later in this blog. For example, where a property is held in trust for Canadian resident beneficiaries, there may be a requirement to file a return (form UHT-2900, Underused Housing Tax Return and Election Form) even though no non-residents have an interest in the property and no tax is payable.

In this blog, we highlight the UHT’s key elements and answer some top questions you might have about the new tax. See also the Canada Revenue Agency (CRA)’s new UHT webpage, which includes the new UHT return, technical guidance and other information, and which, as we understand, the CRA will update with new information  going forward. We will update this tax blog when new information is provided, and we will alert you regarding these updates via our Canadian Tax News page.

Finally, this blog only covers the national UHT. Some provinces and municipalities impose similar vacancy taxes, and you should review these rules also if you or your client has affected properties in these locations.

What is the UHT?

The UHT is intended to apply to underused housing in Canada owned directly or indirectly and wholly or partly by non-resident, non-Canadians. UHT obligations apply for calendar years (beginning with 2022) to affected owners of residential property1 in Canada on December 31 of the relevant year.

The UHT rules have two requirements: an annual reporting requirement and, for some of these filers, a tax liability for UHT. The tax is calculated by multiplying the residential property’s value by the 1 per cent tax rate. It must be paid to the CRA by April 30 of the following calendar year, when the annual return is also due.

The UHT rules categorize owners of residential property in three broad groups:

  1. owners with no UHT reporting or tax obligation (referred to in the UHT legislation as “excluded owners”)
  2. owners required file the UHT return and pay tax (referred to by the CRA in their guidance as “affected owners”)
  3. owners required to file the UHT return but with no tax payable (also “affected owners”)

Which owners are excluded?

Excluded owners who are exempt from any UHT obligations include (as of December 31 of a calendar year): 

  • individual Canadian citizens or permanent residents2 of Canada (“Canadian individuals”), unless they would be exempt as an owner in their capacity as a trustee or partner (excluding personal representatives of a deceased individual)
  • publicly traded Canadian corporations
  • persons with title to property in their capacity as a trustee of a mutual fund trust, real estate investment trust or specified investment flow-through trust (SIFT)
  • registered charities
  • cooperative housing corporations
  • municipal organizations and other public institutions and government bodies
  • an Indigenous governing body or a corporation
  • “prescribed persons” (not yet defined by regulation at the time of writing)

Which owners must file the UHT return and pay the tax?

Affected owners of residential property who must file a return and pay the tax include:

  • individuals who are not Canadian citizens or permanent residents who do not qualify for an exemption
  • private corporations, including Canadian controlled private corporations (CCPC), partnerships and trusts (other than estates) that own3 residential property in Canada and are not eligible for an exemption

Which owners must file the UHT return but are exempt from the tax?

This subset of affected owners is generally eligible for one of the available exemptions, but they still need to file the annual return to claim the exemption for a calendar year.

What are the exemptions?

Affected owners must first determine whether they qualify for one of the following exemptions from the tax. If they do not, the UHT will be payable.

Exemptions based on qualifying occupancy

An owner of a residential property may be exempt for a calendar year in the following situations.

  • Primary place of residence – The residential property is the primary place of residence of: 
    • the owner or their spouse or common-law partner (referred to as “spouse” in this blog), or
    • a child of the owner or owner’s spouse who occupies the residential property for authorized study at a designated learning institution.
  • Qualifying occupants – The residential property is occupied by one or more qualifying occupants in relation to the owner for at least 180 days of the year (counting only the days of the qualifying occupancy period in the year).

Primary place of residence

The CRA’s UHT Notice 6 Exemption for Primary Place of Residence provides guidance on how to determine whether a residence will be considered the primary place of residence for UHT purposes.

The CRA indicates that where an owner has more than one place of residence, the place of residence that is first in order of importance to the owner is their primary place of residence. A place of residence that is not first in order of importance to them is a secondary place of residence. In addition, if the owner is not a citizen or a permanent resident of Canada and their primary place of residence is outside Canada, any residential property that they own in Canada is generally considered to be a secondary place of residence, unless it can be proved otherwise. The CRA notes that while there is some similarity to the term principal residence used under the Income Tax Act, the determination of whether a home is a principal residence is not necessarily an indicator of whether a residential property is an individual’s primary place of residence for purposes of the UHT.

Finally, the CRA states that their guidelines and criteria under the goods and services tax/harmonized sales tax (GST/HST) to determine whether an individual’s residence is their primary place of residence may be used for the underused housing tax.

Qualifying occupants

A qualifying occupancy period means a period of at least one month in the calendar year during which a qualifying occupant continuously occupies a dwelling unit that is part of the residential property.

In UHT Notice 7, Exemption for Qualifying Occupancy, in general, if an individual has the right to occupy a dwelling unit for a period on a continuous basis (that is, without interruption throughout the period), the individual has continuous occupancy of the dwelling unit for the period.

An individual’s continuous occupancy for a period is not necessarily interrupted by the individual’s physical absence from the dwelling unit at a time in the period if both of the following apply:

  • the individual still has the right to occupy the dwelling unit throughout their physical absence
  • the right to occupy the dwelling unit is not given to another individual for any period during the physical absence

The CRA indicates that their guidelines and criteria under the GST/HST to determine whether an individual has continuous occupancy of real property will be used for the UHT.

The CRA states that each affected owner of a residential property must separately determine whether they have one or more qualifying occupancy periods for their ownership of the residential property. A qualifying occupant in relation to the owner includes:

  • an arm’s length tenant, under a written agreement
  • a non-arm’s length tenant who is given continuous occupancy of the dwelling unit under a written agreement for a fair amount of rent4
  • an individual owner or their spouse who is in Canada to pursue authorized work under a Canadian work permit and who occupies the dwelling unit for that purpose
  • a spouse, parent or child of the owner who is a citizen or permanent resident

Multiple residential properties

If either (or both) the owner and their spouse own multiple residential properties, their ownership may not qualify for the exemptions for either primary place of residence or qualifying occupancy unless they file an election with the CRA to designate only one property to qualify for the primary residence exemption or to be considered for the qualifying occupancy exemption. The election is included in Section 3 of the UHT return and must be filed by April 30 of the following year. Where the owners own the property jointly, they must also make the election jointly. Only one election for a calendar year can be made by the owner and their spouse, and they can only designate one residential property in the election.  An owner and their spouse cannot designate different residential properties for the two exemptions.

Where an owner or their spouse elect to designate one of the multiple properties as a primary residence, they cannot be qualifying occupants of any other properties they may own.

Exemptions based on a property’s limited availability

An exemption may be allowed if the residential property’s availability is limited for any of the following reasons.

  • Limited seasonal access – The property is not a suitable residence year-round or not accessible during part of the year.
  • Disaster or hazardous condition – The property is uninhabitable for at least 60 consecutive days in the calendar year due to as disaster or hazard caused by circumstances beyond the owner’s reasonable control, and the property was not exempt in a previous year for the same reasons.
  • Renovation – The property qualifies for the exemption for residential properties that are uninhabitable for at least 120 consecutive days in the calendar year due to a renovation done without unreasonable delay, and the property was not exempt in a previous year for the same reasons.
  • Under construction –The property was not substantially completed (generally, 90 per cent or more) before April of the calendar year, or it was substantially completed in January, February or March, offered for sale to the public during the year, but never occupied by an individual.
  • Year of acquisition – The owner first acquired the residential property during the year and did not own the same property during any of the nine preceding years.

Exemption based on type of owner

The following types of owners are exempt from UHT:

  • deceased owners and their personal representatives (exempt in the year of owner’s death of the owner or the following year)
  • surviving co-owners where a co-owner has died and owned at least 25 per cent interest in the property (exempt in the year, or the previous year of the deceased owner’s death)
  • specified Canadian corporations, which are generally Canadian corporations having less than 10 per cent of their votes or equity value owned by foreign individuals or corporations
  • persons who own the property solely in their capacity as a partner of a specified Canadian partnership, which is one that has, on December 31, only excluded owners or specified Canadian corporation as partners
  • a person who owns residential property solely in their capacity as a trustee of a specified Canadian trust, which is a trust that owns a residential property where each beneficiary with an interest in the property is, on December 31, an excluded owner or specified Canadian corporation.

Exemption based on prescribed area and condition or person

Recreational and other properties in less densely populated areas may be exempt from the UHT if the residential property is:

  • located in a prescribed area of Canada, and
  • used personally by the owner, the owner’s spouse or both for at least 28 days during the calendar year.

You can find out whether a residential property is in a prescribed area of Canada using the CRA’s Underused housing tax vacation property designation tool. The determination is based on periodically updated census data, so you should check whether an area qualifies as a prescribed area for UHT purposes each year. For owners unable to make a determination using the Underused housing tax vacation property designation tool, the CRA provides instructions and steps to conduct a “manual place search.” 

Finally, “prescribed persons” are also exempt under the UHT legislation, but no regulatory definition of this term has been released to date.

How is the UHT calculated?

The UHT formula is one per cent of the property’s value multiplied by that person’s ownership percentage. Where property is held jointly (i.e. no percentage is listed in the land registry), the ownership percentage is based on the number of owners.

There are two ways to determine the value of a residential property:  

  • Taxable value, which is the greater of: 
    • the assessed tax value for the year under the related property tax assessment, and 
    • the most recent sale price on or before December 31 of the calendar year, or
  • Fair market value, which can be used if the owner files an election with the CRA to use that method for the property (the election is included on form UHT-2900).

Note that where the tax is not based on the most recent sale price, that price is still required to be disclosed on the form. Also, it should be kept in mind that the form requires the disclosure of the owners who own 10 per cent or more of the property and their ownership percentage.

To elect to use fair market value, the CRA states that the owner must get a written appraisal report for the property prepared by an accredited member of the Appraisal Institute of Canada (or a comparable body), operating at arm’s length from the owner.

When are UHT returns and payments due?

Every affected owner must file an annual return with the CRA for each residential property they owned on December 31 of a calendar year. The return and any UHT payable are due by April 30 of the following calendar year, with the first annual filings and payments due by May 1, 2023 (since April 30 falls on Sunday) for applicable properties owned on December 31, 2022. However, to provide more time for affected owners, the CRA announced on March 27 that penalties and interest will be waived under the UHT Act for 2022 UHT returns provided that the return is filed and any UHT due is paid by October 31, 2023.

Affected owners who own two or more residential properties in Canada on December 31, must file separate UHT returns for each property. Where ownership is shared, each affected owner must file separate UHT returns for the property and either claim an exemption or pay the tax based on their share of value.

According to the CRA, the filing can be done electronically through My Account (available in March 2023), My Business Account (beginning March 14, 2023) or Represent a Client. Alternatively, the return can be filed directly on the CRA’s website. To do so, a digital access code from the CRA will be required.

The UHT return can also be filed by paper. Depending on the where the owner is located, the UHT return should be sent to either the Winnipeg or Sudbury Tax Services Office.

How is the UHT paid and what if it is paid late?

If the UHT owing is less than $50,000, the payment can be made by cheque, money order or electronically. For amounts owing $50,000 or more, the payment must be made through an acceptable financial institution.

Daily compound interest will accrue on unpaid amounts at the CRA’s prescribed rate. A deadline extension for filing and payment to the CRA can be made in writing although the CRA has not explained in what circumstances an extension will actually be allowed as it appears the CRA has the power to allow extensions on a discretionary basis.

What happens if a required UHT return isn’t filed?

Every person who does not file a UHT return as required is liable to a penalty equal to the greater of:

  1. $5,000 for individuals, or $10,000 otherwise, and
  2. the total of
    • five per cent of the UHT tax payable by the person in respect of the residential property for the calendar year, and
    • three per cent of the tax payable times the number of complete months after the due date that the balance is unpaid

Where a return is not filed by December 31 of the following calendar year:

  • the penalty is determined as if the exemptions were not available, and 
  • the penalty in (b) above will be determined as if a tax amount was payable for the property.

Where no return is filed for a calendar year at all, that year will never become statute barred.

Finally, a recent change enacted as part of Bill C-32 allows the CRA to decline a request for a section 116 certificate of compliance where a non-resident vendor has not fully complied with its UHT tax and reporting obligations for all periods up to the date of sale.

Impact of UHT rules on common ownership scenarios and property uses

Private corporations owning residential property

Private corporations, including Canadian-controlled private corporations (CCPCs), are affected owners that are required to file the annual UHT return. Specified Canadian corporations are exempt from UHT tax. However, as the threshold for foreign ownership is quite low, any level of foreign ownership should be closely monitored. 

Affected corporations should also keep in mind that the UHT return and liability are due on April 30. If this is out of line with the corporation’s corporate tax filing deadlines, a separate process should be implemented to ensure the UHT requirements are met.

Trusts holding residential property

Trusts can be set up to hold residential property. For residential property held in trust, the trustee is generally the affected owner who is required to file the annual UHT return (trustees of mutual fund trust, real estate investment trust or SIFTs are excepted from this rule). Additionally, unless the trust is a specified Canadian trust (i.e., all the beneficiaries are excluded owners), the property may be subject to the UHT. The UHT legislation appears to assume that the trustees legally own the property, so they – and not the trust – are required to file the return and pay any taxes. While this is in line with the CRA’s processes for filing UHT returns and remitting the taxes, it is out of step with how T3 tax returns are filed. We have suggested to the CRA that a more consistent approach would reduce confusion.

Partnership versus co-ownership considerations

If an owner owns a residential property with other owners, special attention should be paid to determine if a partnership exists. In the case of individuals who are Canadians, the existence of a partnership may be the deciding factor to determine whether a UHT return must be filed as Canadian individuals holding a property as co-owners should generally be excluded owners. In Canada, a partnership generally exists where there is a relationship between two or more persons carrying on a business, with or without a written agreement, to make a profit.5

As discussed above, if a partnership exists, partner(s) who hold title to the property on behalf of the partnership are required to file a UHT return and could be subject to the UHT depending on whether an exemption is available.   If the final determination made on partnership status is not consistent with prior income tax filings, consideration should be given to correcting prior returns and ensuring that future filings are consistent with the determination made for UHT purposes.

Non-resident owners who own Canadian residential rental property

Non-resident owners who receive rental income from residential property in Canada are affected owners who will have to file the UHT return and potentially pay UHT (depending on whether they qualify for an exemption).

Affected owners who have elected (under section 216 of the Income Tax Act) to file a Canadian tax return should keep the different filing deadlines in mind – that is, UHT returns and payments are due on April 30 of each year while section 216 tax returns may be due on June 30. We have suggested to the CRA that consolidating these filing requirements could reduce compliance costs.

Things to watch for

Although the UHT legislation took effect from January 1, 2022, some details are still unclear. As currently written, the UHT is overly broad and certain resident Canadians may have UHT filing and payment obligation. Additional regulations may be introduced in the future to prescribe special treatment for certain persons, properties or areas.

The UHT returns and details on how to make payments were made available on CRA’s website on January 31, 2023.  As such, UHT returns can now be filed and payments can be made.  However, details on how to electronically file are still outstanding, and further guidance is expected. The CRA has recently published UHTN15 Questions and Answers About the Underused Housing Tax which addresses some of the questions that have arisen on the UHT. We understand that the CRA will continue to update UHTN15 with further Q&As. 

We’ll keep you posted

Be sure to check back on this Tax blog for updates as we continue to monitor legislative and administrative developments and the CRA continues to enhance their UHT resources.

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1 In general, residential property is defined as property that includes a detached house (or similar building), or a semi-detached house, rowhouse unit, residential condominium unit (or other similar premises), along with any common areas, appurtenances, and the related land.

Permanent resident” for UHT purposes has the same meaning as provided under the Immigration and Refugee Protection Act, rather than under income tax concepts of residency.

A residential property’s owner is the title holder under the relevant land registration system.

Fair rent is currently defined as five per cent of the residential property’s taxable value.

CRA provides guidance on the determination of the existence of a partnership in Income Tax Folio S4-F16-C1, What is a Partnership? In addition, UHTN 15 also deals with some questions about partnerships.


The views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.