The Underused Housing Tax (UHT)
The Underused Housing Tax (UHT), enacted under the Underused Housing Tax Act (S.C. 2022, c. 5, s. 10), came into effect on January 1, 2022. This fédéral tax measure aims to discourage non-resident owners from leaving residential properties vacant in Canada, in a context of housing affordability crisis. The annual 1% tax applies to the property's taxable value, calculated as the higher of the latest municipal assessment and the most recent purchase price.
Who Must File a Return?
The UHT filing obligation is broader than the payment obligation. All owners who are not Canadian citizens or permanent residents must file a return. Private Canadian corporations, trusts, and partnerships holding residential properties must also file, even if the ultimate owners are Canadian citizens. This distinction is crucial: the filing obligation is separate from the tax payment obligation. An owner may be exempt from payment but still required to file.
Tax Payment Exemptions
- Primary residence: the property is the primary residence of the owner, spouse, or child attending a post-secondary institution in Canada
- Long-term rental: the property is rented to arm's-length tenants for periods totalling at least 180 days in the calendar year, with each rental period at least one month
- Major renovation: the property is uninhabitable or inaccessible due to major renovation work, documented by building permits
- Newly acquired property: exemption for the first calendar year following acquisition
- Owner's death: exemption for the calendar year of death and the following year
- Natural disaster: the property is uninhabitable due to a disaster
Tax Calculation and Deadline
The 1% tax is calculated on the property's taxable value, the higher of the latest municipal assessment available on December 31 of the relevant year and the most recent purchase price. If a property was purchased for $800,000 but the municipal assessment is $650,000, the tax is calculated on $800,000, or $8,000 per year. The return must be filed and tax paid by April 30 of the year following the tax year. The return is separate from individual or corporate income tax returns and uses form UHT-2900.
The Mortgage Broker's Informational Role
Interaction with the Non-Resident Purchase Ban
The UHT operates alongside the Prohibition on the Purchase of Residential Property by Non-Canadians Act. While the ban prevents non-residents from purchasing new residential properties in major agglomerations, the UHT targets properties already owned. A non-resident who purchased their property before the ban took effect in 2023 could be subject to the UHT if they don't use it as a primary residence or rent it long-term. In Quebec, major metropolitan regions affected by both measures include Montreal, Quebec City, Gatineau, Sherbrooke, Trois-Rivieres, and Saguenay. Mortgage brokers working with international investors or recent immigrants must be particularly vigilant about these complementary regulations.
Recent Evolution and Outlook
Since its introduction, the UHT has been criticized for its administrative complexity, particularly for Canadian citizens holding properties through corporations. The fédéral government has introduced progressive administrative relief, including simplified filing for certain exempt owner categories. However, the tax remains in force and non-compliance penalties remain severe. UHT revenue is modest compared to other tax measures, but the government maintains the tax as a political signal of its commitment to fighting foreign real estate speculation and promoting productive use of Canada's residential housing stock.
While the mortgage broker is not a tax advisor, they play an important informational role for their clientele. Brokers should identify clients potentially subject to the UHT during the intake process: non-residents, temporary residents, buyers using corporate structures or trusts, and foreign investors. Brokers must inform these clients of the UHT's existence, the filing obligation, potential penalties, and direct them to a specialized accountant or tax advisor. This diligence protects the broker and strengthens the trust relationship with the client.