Owning a home in Canada has always carried financial responsibilities: mortgages, upkeep, insurance, etc., but lately, it also carries new obligations that many people never saw coming. Housing has become a lightning rod for policy, economics, and politics, and tax rules are now woven into that fabric. For long-time homeowners, it can feel like the ground has shifted. What was once a private matter between owner and lender is now tied to government reporting and national housing priorities.
For new buyers (who may be eligible for Canada’s tax credit for first-time home buyers), the learning curve is steeper because rules that didn’t exist a decade ago are suddenly central to the ownership experience. What makes it even more interesting is that these changes aren’t confined to major investors or offshore buyers; they extend into partnerships, corporations, and even some Canadian families who might never imagine themselves subject to a federal housing tax. In today’s market, ownership now involves navigating a tax system and taxes on real estate investing that keep evolving.
An Overview of the Underused Housing Tax Framework
The Underused Housing Tax (UHT) is a relatively new measure introduced by the federal government through the Underused Housing Tax Act, which came into effect on January 1, 2022. Its primary purpose is to discourage housing speculation and free up underutilized properties, particularly in Canada’s larger cities, where housing shortages and affordability concerns have contributed to what is widely referred to as “Canada’s housing crisis.”
The UHT is an annual 1% tax applied to the value of certain residential properties considered to be “underused” or “vacant.” The legislation primarily targets non-resident, non-Canadian owners of housing who leave their properties vacant for most of the year. However, it also imposes filing requirements on some Canadian owners, even in situations where no tax is ultimately payable.
The UHT’s Legislative Intent
The framework of the UHT is designed to strike a balance between revenue generation and behavioural influence. By imposing a cost on leaving properties unoccupied, the government hopes to encourage owners to either rent them out or sell them, adding much-needed supply to the housing market. The law is broad in scope, capturing individual property owners and various types of Canadian business entities, such as corporations, partnerships, and trusts with residential real estate holdings.
In short, the UHT’s framework shows the federal government’s attempt to influence housing availability through taxation, while also creating a system for tracking ownership and property use across Canada.
Definitions and Key Terms
Understanding the Underused Housing Tax starts with a few key definitions, since the legislation assigns very specific meanings to common words. Understanding these terms is key to knowing whether the rules apply to a property or its owner.
Residential property
The Act typically refers to housing units designed for living. This includes detached and semi-detached houses, townhouses, condominium units, duplexes, triplexes, and similar dwellings. It also extends to land that is reasonably necessary for the use of that housing, such as yards or driveways.
Owner
An “owner” is defined broadly, and is not limited to individuals listed on title. It can include corporations, partnerships, or trustees of trusts if they hold legal title to a residential property. Because the term captures more than just people who personally live in a home, it’s important to read it in the legislative sense rather than its everyday meaning.
Excluded Owner
Excluded owners are automatically exempt from filing and paying the Underused Housing Tax. Examples include Canadian citizens and permanent residents who own property directly, as well as certain public corporations, registered charities, and government bodies. This definition narrows the scope of who the tax was meant to capture, while clarifying who is not affected at all.
Other terms, like calendar year (which always means January 1 to December 31 in this context) and specified Canadian corporation (a Canadian entity that meets set ownership criteria), also have precise meanings that shape the UHT.
Comparison with Similar Vacancy Taxes
The Underused Housing Tax often gets mentioned interchangeably with other vacancy-related taxes, but they’re not the same. Canada already has a few local vacancy taxes, mostly at the municipal level, and the UHT is applied alongside them rather than replacing them.
Municipal Taxes on Vacant Homes
One of the earliest examples is Vancouver’s Empty Homes Tax, introduced in 2017. It applies to residential properties left vacant for more than six months of the year, unless certain conditions are met. The City of Vancouver enforces it, and the revenue goes directly into local housing initiatives. Toronto followed suit with its Vacant Home Tax, which took effect in 2023 and is structured in a similar way. Other municipalities, like Ottawa, are rolling out their own versions.
The UHT, by contrast, is federal. It applies across the country and is administered by the Canada Revenue Agency, not city governments. The rate is set at 1% of the property’s value, which may sound similar to municipal vacancy taxes, but the scope is different. The federal version was designed mainly to target non-residents filing tax returns in Canada, or non-Canadian ownership, while local taxes apply more broadly to anyone who leaves a home empty.
Another key difference is the narrower scope of municipal vacancy taxes. While similar to the overarching goal of housing affordability, cities use them specifically to try to make more units available for renters where tight supply has pushed prices past the point of accessibility for too many.
It’s crucial to note that these taxes can overlap. A property in Vancouver or Toronto owned by a non-resident could be subject to both the UHT and a local vacancy tax in the same year. Each has its own rules, definitions, and filing process, which makes it essential for property owners to understand the differences rather than assuming one cancels out the other.
Exemptions to the Tax
Not every residential property in Canada is subject to the Underused Housing Tax. As briefly touched on when we discussed the definition of an excluded owner, the law includes a number of exemptions that relieve certain owners from having to pay the 1% annual tax even if their property might otherwise be considered underused. These exemptions generally fall into two main categories: ownership-based and property-based.
Ownership-Based Exemptions
Some property owners are excluded from the tax entirely because of their identity or relationship to the property. Key ownership exemptions include:
- Canadian Citizens and Permanent Residents
If you are a Canadian citizen or permanent resident who owns residential property in your personal capacity, the UHT likely does not apply to you, regardless of whether the property is used year-round. - Specified Canadian Corporations, Partnerships, and Trusts
Certain Canadian entities are exempt from the UHT if they are considered “specified Canadian corporations,” which generally means they are incorporated in Canada and not controlled by non-residents. Similarly, specified Canadian partnerships and trusts are also generally exempt. - New Owners
If you acquired a property during the calendar year and did not own it on December 31, you are typically not required to pay the UHT for that year. - Deceased Owners and Their Estates
Properties held by a deceased individual’s personal representative or estate may qualify for exemption in the year of death and, in some cases, the following year.
Property-Based Exemptions
Other exemptions relate to how the property itself is used or classified. Common property-based exemptions include:
- Primary Place of Residence
A property used as a principal residence by the owner, their spouse, or child for at least 180 days in the year is exempt. - Qualifying Occupancy
If the property is occupied for 180 days or more in the year by qualifying individuals (e.g., tenants, arm’s-length occupants), it may be exempt. - Uninhabitable Properties
If a property is under construction, undergoing significant renovations, or is uninhabitable due to disaster or hazardous conditions, it may qualify for an exemption. - Seasonal Accessibility
Properties that are not accessible year-round (e.g., seasonal cottages without winter road access) may be exempt.
Common Trigger Scenarios for Taxpayers Who Are Normally Considered “Excluded Owners”
There are some situations when Canadian citizens, permanent residents, and Canadian corporations, partnerships, and trusts might still have to pay the Underused Housing tax, such as:
Properties held in partnerships, trusts, or corporations. Canadian citizens or residents owning property through these entities may be subject to UHT if the entity does not meet Canadian control or ownership requirements, or if changes in the law have not excluded their specific situation.
Bare trusts. Legal titleholders in bare trust arrangements may have to file the UHT return even if they do not have direct beneficial ownership.
Vacant or underused properties. Where the property is not a “primary place of residence,” not rented for at least 180 days to qualifying occupants, or otherwise not meeting an exemption, even Canadians may be liable for the tax if not considered an excluded owner.
It’s crucial you understand these exemptions and your obligations, not only to avoid unnecessary tax liability but also to ensure you’re filing the required forms correctly, even if you owe nothing. Faris CPA can help determine your eligibility and file your UHT return on time.
Mandatory Filing Requirements
Even if no Underused Housing Tax is ultimately payable, many property owners are still required to submit an annual return. This obligation extends beyond non-residents, which often comes as a surprise to Canadians who assume they are automatically exempt.
The key filing rule is this: if you own Canadian residential property and you are not classified as an “excluded owner,” you must file a UHT return each year by April 30 for the previous calendar year. The filing requirement applies per property, which means that owners of multiple residential properties may need to file multiple returns.
Examples of those who must file include:
- Non-resident, non-Canadian individuals with ownership of Canadian residential real estate.
- Private corporations (even those incorporated in Canada), unless they qualify as “specified Canadian corporations.”
- Trustees and partners who hold residential property through trusts or partnerships, including bare trusts.
- Certain Canadian citizens and permanent residents who own residential property through these non-excluded structures.
The return itself must disclose detailed information about the property, its usage during the year, and the identity of all relevant owners. The Canada Revenue Agency requires owners to file electronically using the prescribed forms, and late submissions can trigger significant penalties, even where no tax is payable.
It is important to note that filing obligations are separate from liability for the tax. For example, a Canadian-controlled corporation that qualifies for an exemption may still need to submit the annual return to demonstrate that status. Failure to do so could expose the owner to compliance reviews and financial penalties.
For many owners, the obligation is primarily about documentation and transparency rather than paying tax. Nonetheless, it is a critical step in remaining compliant under the UHT framework.
Filing Process and Compliance
Once it is established that a return must be filed, the next step is completing the prescribed form and submitting it to the Canada Revenue Agency. The required filing is Form UHT-2900, Underused Housing Tax Return and Election Form. This form collects detailed information about the owner, the property, and the grounds for any exemptions or elections being claimed.
The form requires:
- Identification details for the owner (individual, corporation, partnership, or trust).
- A description of the property, including its address, type, and legal identifiers.
- Ownership details such as acquisition date and ownership percentage.
- Disclosure of whether the property qualifies for an exemption, with supporting explanations.
Owners should maintain supporting documentation that substantiates their filing position. Examples include lease agreements showing qualifying occupancy, construction contracts for properties under development, or evidence of seasonal inaccessibility.
For corporations and trusts, organizational documents confirming Canadian control may also be necessary. While these materials are not always submitted with the form, they should be readily available in case of a CRA review.
Submission can be done electronically through the CRA’s online portals or by mail. Non-resident owners may need to obtain a Canadian tax identification number before filing, which can add extra time to the process.
In addition to the return itself, owners may need to file elections on Form UHT-2900 to claim certain exemptions. For instance, elections are available for properties held through specified Canadian partnerships or trusts. These elections must be filed concurrently with the return to be valid.
Even if no tax is payable, incomplete or late filings can also expose owners to possible CRA tax audits, making documentation and procedural compliance just as important as the tax itself.
Additional Compliance Considerations
Beyond the annual return, several other compliance elements under the Underused Housing Tax can affect how owners manage their obligations.
A Certificate of Compliance Needed When…
A certificate of compliance may be required when there is a change in ownership, particularly in cases involving non-resident owners. The certificate confirms that any liability under the UHT has been satisfied or appropriately secured before the property is transferred. Without this clearance, purchasers can become liable for unpaid tax, which makes obtaining a certificate a critical step in real estate transactions.
If You Wish to Pay the UHT Based on the Property’s Fair Market Value
The fair market value (FMV) election gives owners the option to determine the UHT liability based on an independent appraisal rather than the property’s assessed value for municipal or provincial tax purposes. This election can be advantageous when the local assessment is higher than the property’s true market value. To rely on the election, owners must retain a written appraisal prepared by a qualified professional and submit the election with their Form UHT-2900. Documentation must be precise, as the CRA can request to review the valuation basis during an audit.
Guidance and Support Resources for Property Owners
The CRA provides detailed instructions for Form UHT-2900, as well as a technical help line for owners navigating unusual situations, such as filing through partnerships or dealing with seasonal residences. Also, professional advisors: tax accountants, appraisers, and legal counsel, can provide further clarity, particularly when exemptions hinge on nuanced definitions or when structuring ownership through corporations or trusts.
By considering these additional compliance factors, especially when transferring property or making elections, you can reduce exposure to disputes with the CRA and ensure your filings withstand closer review.
In Conclusion
When people talk about housing in Canada, most of the attention lands on affordability, supply, and interest rates. Yet behind the headlines, a quiet reality is taking shape: property ownership is becoming as much about compliance as it is about shelter or investment. That shift may feel frustrating, but it also opens a revealing window into how governments are rethinking the role of real estate in society. By asking owners to document, report, and sometimes pay, policymakers are sending a message that property is more than a private asset; it’s a public lever tied to broader goals like housing access and market balance.
Whether or not you agree with that approach, the UHT highlights how deeply entwined personal wealth and public policy have become. For homeowners and investors alike, the parting lesson here may be less about forms and deadlines, and more about recognizing that the landscape of property ownership in Canada is being reshaped in ways that go far beyond bricks and mortar.
