Canada UHT Updates: What the Online Assessment Tool Means for You

As a Canadian property owner or investor, you may be aware of the country’s new Underused Housing Tax (“UHT”) that was enacted for the 2022 and future reporting years. The stated objective of the UHT is to increase affordable housing availability and at least temporarily discourage foreign speculative investment that does not add to Canada’s rental housing stock. However, the rules have caught many unsuspecting Canadians in the crosshairs. Fortunately, the CRA have launched a new tool to make it easier to determine if you have to file a UHT return and pay the Underused Housing Tax.

New UHT Assessment Tool

The launch of the Canada Revenue Agency’s new online assessment tool means you can now determine if your property is subject to this tax, or at a minimum, whether you and any other owners of residential Canadian property must file a UHT return. With so much uncertainty swirling about the implications, this article provides clarity by walking you through how to use the tool and interpret the results.

Keep in mind, the current version of the online tool only considers the current rules that exist in legislation today. Proposed changes were introduced in Canada’s Fall Economic Statement on November 20, 2023, and the Department of Finance had requested feedback from interested parties until January 2, 2024. We have covered these proposed changes in a new article where we explain how they will affect residential property owners, once enacted into law.

What is Canada’s Underused Housing Tax (UHT)?

The Government of Canada implemented the Underused Housing Tax (UHT) to encourage owners of vacant or underused residential properties to return them to the country’s residential rental market stock. The UHT applies an annual tax of 1% of a property’s value if it is considered vacant or underused, but it only applies to certain property owners who are generally not Canadian citizens or permanent residents of Canada.

Unfortunately, the government’s legislation and rollout of these new rules left a lot of room for interpretation and a tremendous amount of ambiguity which has rightly confused many taxpayers and their tax advisers. In response to the confusion, the government released a new assessment tool to help you determine if you must file.

What are the Next Steps?

If the online assessment tool determines whether a property may be subject to the UHT, owners should act to determine if any exemptions apply to them and thus avoid paying tax. If the tax does apply, owners could take one of the following steps:

Renting out the property at a fair market rate. The tool can provide estimates of typical rental rates for properties in the area.
Applying for an exception or exemption. Property owners who believe special circumstances should exempt them from the UHT, they can claim the exemption on the UHT return.

The new online assessment tool aims to promote the optimal use of residential properties to support Canada’s rental housing needs and determine if property owners are affected by the UHT. Failing to do so could result in penalties, payment of the UHT and annual UHT filing obligations for vacant or underused properties.

How does Online UHT Self-Assessment Tool work?

The tool helps residential property owners to determine if they must file a UHT return, and if so, calculate an estimate of their potential UHT liability for the 2023 and future calendar reporting years. The tool walks users through a series of questions about their Canadian citizenship (or permanent residence status) to determine if the user is an “affected owner”. If so, a UHT return must be filed, unless one or more exemptions apply. The tool then takes the user through several additional questions to determine if and which exemption(s) may apply. If an exemption applies (e.g., qualifying occupancy such as a third-party residential lease at fair market value rent), then the tool determines whether the tax applies. If UHT applies and there are no exemptions available, property owners can then choose to pay the full amount or pay in installments.

What are the Expanded Payment Options?

In 2024, the CRA has expanded the payment options for the UHT to include installment payments. Homeowners can now pay their UHT liability over the year in four equal installments due on the 15th of March, June, September, and December. The installment payment option provides more flexibility for homeowners to pay the tax. Failure to pay installments or the full UHT liability by the December due date will result in penalties and interest charges.

What is Increased Audit Focus?

The CRA has increased the audit focus on UHT compliance for the 2024 tax year. The CRA will review a larger number of UHT returns and may request additional documentation from homeowners to verify occupancy claims. Homeowners should ensure they maintain thorough records to support their UHT filing, including occupancy logs, rental agreements, and utility bills. Failure to provide documentation upon request may result in penalties.

How to File Your UHT Return?

If the online tool determines that your residential property is subject to the UHT, you will need to file a UHT return for the property by April 30 of the following year. The return (UHT-2900) can be filed using the CRA’s online portal for business or personal accounts or the return can be downloaded in a fillable PDF format and then mail or fax the completed return to one of two CRA tax centers, noted on page 8 of the UHT return’s instructions.

How to Appeal your UHT Assessment?

If you disagree with the UHT assessment for your residential property, you have the right to file an appeal with the CRA. You may file a Notice of Objection (UHT-0001) to appeal the assessment if you believe the assessed property value is too high, if the property usage has been incorrectly categorized, your exemption claimed was not properly applied or if there are other errors in the UHT assessment. The deadline for filing the UHT-0001 is 90 days (about 3 months) from the date of the Notice of Assessment. Achen Henderson helps people navigate the UHT and file appeals where appropriate.