Certain owners of residential real estate in Canada should be aware of their Underused Housing Tax (UHT) filing obligations and how recent changes and clarifications may affect them.
What are the changes to the Underused Housing Tax?
The UHT took effect on January 1, 2022, and applies to certain Canadian residential properties owned on December 31 of each calendar year.
While the initial legislation intended to target properties owned by non-residents of Canada, it required some Canadian taxpayers to file UHT returns even if their ownership qualified for exemption. As such, the definition of an excluded owner—a property owner who is not required to file a UHT return—was expanded to include specified Canadian corporations, partners of specified Canadian partnerships, and trustees of specified Canadian trusts. This change effectively removed the UHT filing requirement beginning with the 2023 taxation year for many Canadians.
However, Canadian corporations, partnerships, or trusts that owned properties in 2022 may have outstanding filing obligations even if they are not required to file in subsequent years due to these changes. In addition, non-residents of Canada who own residential property in Canada (e.g., a family cottage or a residential rental property) may need to file a UHT return.
Canada Revenue Agency (CRA) rulings on the UHT
Several recent UHT rulings issued by the CRA have clarified its position with respect to UHT filing obligations.
- Owners who hold title for a corporation in a bare trust arrangement are not excluded owners and as a result, are required to file a UHT return. A bare trust agreement does, however, appear to shield a beneficial owner who does not have title of the property from being considered an owner and having to file a UHT return.
- A personal representative is not a trustee. This has particular importance for UHT returns for the 2023 taxation year and onwards, as trustees of specified Canadian Trusts are now excluded owners.
- If a partnership is declared for income tax purposes, it may be difficult to characterize the relationship as something else for UHT purposes.
- If a UHT return is filed by a partner of a partnership with no partnership business number, filing a paper UHT return and applying for a partnership number is recommended.
- The UHT exemption for primarily place of residence is not available if the owner owns the property as a member of a partnership.
UHT compliance issues
Documents filed in relation to real property, such as the T2062 Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property, can trigger a demand letter to file a UHT return. Additionally, the sale of any real property may trigger inquiries or a UHT audit.
The CRA has been reviewing and confirming exemptions claimed by those who have filed UHT returns. For example, a person claiming the vacation exemption may be required to prove that the property exists in an eligible area of Canada, that it was occupied for more than 28 days each year, and to provide documentation to support the exemption such as credit card statements, proof of transportation, tax bills, deeds of purchase, and bills of sale.
Making adjustments to previously filed UHT returns can also trigger audits in relation to the adjustments made (e.g., claiming an exemption that was not claimed previously).
How BDO can help
It's essential to be aware of your UHT obligations. Missed filing deadlines and failure to provide required information can result in interest and penalties, and potentially tax if no exemption applies. By understanding your obligations and risks, you can better prepare for filing your UHT return and avoid common pitfalls.
The information in this publication is current as of March 27, 2025.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.