UHT:  Should it Stay or Should It Go?

The Underused Housing Tax (UHT), was introduced as a tax on vacant homes owned by non-residents in the April 19, 2021 federal budget. According a recent interview with Investment Executive, the tax has already raised 30 million dollars as of mid December 2023, but on closer look, less than 2% of the 426,200 returns assessment had taxes owing, and the amount collected has fallen short of goals.  Is it worth the complexity and the cost of compliance to keep it in place? That’s our January poll question. Here’s some background:

Everyone who is not an “excluded person” must file a UHT-2900 return to report residential real estate held on December 31 of both 2022 and 2023 on April 30, 2024.  The “affected persons” required to file were:

For the 2022 filing year only, non-resident owners of certain residential properties and Canadians who own real estate in specified partnerships, corporations and trusts.  For 2023, the latter three categories will be eliminated, according to draft legislation issue in November 2023.

A reduction in the failure to file penalties, originally $5,000 for individuals and $10,000 for corporations, are proposed to drop to $1,000 and $5,000 respectively for all filings due on April 30, 2024.  

A couple of other changes were announced in the draft legislation:

For the 2022 and subsequent calendar years:  ‘Condominiumized’ apartment buildings will no longer be considered to be residential properties for UHT filing purposes.

Starting in the 2023 and subsequent calendar years:  Residential properties used as a residence or lodging for employees and located outside a census metropolitan area or a census agglomeration having 30,000 or more people will be exempt from the UHT filings.

Starting in 2024:  A UHT vacation property exemption* will only be allowed for one residential property for a calendar year, whether it is an individual or a spousal unit. Under the rules, only individual owners qualify for the exemption for vacation properties and if the following conditions apply:

• “based on the last census by Statistics Canada before the calendar year, the residential property is located in an eligible area of Canada—an eligible area is a place that is any of the following:
• outside both a census metropolitan area and a census agglomeration
• inside a census agglomeration that is not a specified census agglomeration
• inside a census metropolitan area or a specified census agglomeration but outside a population centre that is part of such an area or agglomeration
• you, or your spouse or common-law partner, personally use the residential property as a place of residence or lodging for at least 28 days in the calendar year”

*Only affected owners who are individuals qualify for this exemption.

Commentary on draft legislation to change the requirements to file the tax and reduce its exorbitant penalties ended January 3, however as of December 21 – two weeks before this - there was no mention of the proposals or the consultations on the official UHT government landing page. 

According to the CRA spokesperson in the IE article, CRA has assessed $30M in underused housing tax to date and “as of Dec. 14, the CRA had finalized or was in the process of finalizing 426,200 UHT returns. Of the finalized returns, 1.69% had an amount of UHT owing.”

Bottom Line:  Self-assessment became very difficult with the complexity around this new tax, the late arrival of the forms (end of January for the original April 2023 filing deadline), and the multiple flip-flops on the actual filing deadline.   The original revenue target was close to $1 Billion by 2028, with $140 million a year after this.  Is it worth the cost of compliance?  We’d be interested in your take!