Everything You Need to Know About the Underused Housing Tax
You finally have a house in your name in Canada! But that’s not the end — not with the recently introduced Underused Housing Tax.
Simply put, the underused housing tax is payable by a non-citizen, non-resident owners of vacant or underused housing in Canada.
However, it becomes more complex knowing that even a Canadian citizen could be required to pay this tax. Hence, in this article, you’d learn all you should know about the Underused Housing Tax.
Filing a Return, Paying the Tax: Who is Affected?
Of course, the first question you’d want to ask is who is expected to be affected by this new tax act. A large percentage of Canadian house owners are not affected by this.
However, being a citizen doesn’t entirely exempt you from paying the tax in some peculiar situations. In all, there are three determinants of if you are affected by this tax act.
Your Property is a Residential Property
Your property is a residential property when it’s a detached house with no more than three dwelling units and could also include other house adjuncts and related land.
Also, your semi-detached house, a residential condominium, or a rowhouse unit qualifies as a residential property that could be taxed.
You Are the Owner of the Residential Property
You are regarded as the owner of your residential property if your name appears on the land registration system. Or you are a long-term tenant or leaseholder of the property.
You Aren’t Considered an Excluded Owner of the Residential Property
The basic thing here is an excluded owner doesn’t need to file for a return or pay the underused housing tax. Hence, if you are not regarded as an excluded owner, you’re regarded as an affected owner and must file for a return to avoid the penalties attached.
You are an excluded owner if:
- You are considered a Canadian citizen or permanent resident, except in some limited situations where you might be affected. We will say more about this later.
- As a citizen or permanent resident, you own a residential real estate property as a trustee of a mutual fund trust, specified investment flow-through trust (SIFT), or real estate investment trust for Canadian income tax purposes.
- You are a member of the Canadian governing body.
- You are a Canadian corporation with shares listed on the Canadian stock exchange for Canadian income tax purposes.
If you do not fall in the above category, you’re probably an affected owner because:
- As an individual, you are not a Canadian citizen or permanent resident.
- As a citizen or permanent resident, you own a residential property as a member of a trustee of a trust or as a partner of a partnership.
- You are a Canadian corporation without shares on a stock exchange in Canada designated for income tax purposes.
- As a corporation, you are incorporated outside Canada.
The essence of quickly finding out if you are an affected owner is to avoid falling into preventable debt.
As an affected owner, you’re expected to file a tax return and pay the UHT on your residential housing in Canada on December 31.
However, you should also know some exemptions save you from paying the tax, even as an affected owner. Still, you are required to file for a return, then an exemption to avoid the penalty. The penalty is at least $5,000 for an individual and $10,000 for a corporation.
So, what are some things that qualify you for an exemption?
- You are a new owner in the calendar year
- You are a personal representative or co-owner with a deceased individual
- You own a vacation property that is located in an eligible area of Canada
- You own a property that is not accessible or inhabitable in a season of the year.
Now, while this article tells you all you need to know, you might still need to consult your accountant — especially if your housing situation isn’t so straightforward. That way, you can avoid having to pay some tax penalties.