Underused Housing Tax Part I – Overburdening Corporate Property Owners

The federal government’s Underused Housing Tax took effect on January 1, 2022. With the first Underused Housing Tax Return (a “Return”) due April 30, 2023 and severe penalties for non-compliance, it is important that Canadian property owners consider whether they are required to file a Return and, if yes, whether they owe the tax.

This article is the first of a two-part series discussing the application of the Underused Housing Tax (the “Tax”). This part sets out the basics of the Tax and which types of owners are required to file a Return and may be liable for the Tax.

Part 2, found here, will set out property-specific exceptions to the Tax, including how to determine whether a residential property is “underused”. In part 2, we also provide some important tips for drafting residential tenancy agreements to ensure property owners can prove occupancy and that they are not subject to the Tax.

Overview of the Tax

The Underused Housing Tax is a 1% tax on the value [1] of certain residential properties that are vacant or underused in Canada in any given year.

The Underused Housing Tax Act (the “Act”) applies to all residential property owners unless they are made exempt. Persons[2] who are identified as “excluded owners” under the Act are not required to file a Return or pay the Tax. In other words, the Act will have no impact on them.

Any person who is not an excluded owner is an “affected owner” and is required to file a Return in respect of each of its residential properties. Of those affected owners required to file a Return, only a small subset will be required to pay the Tax on any given property. That is because there are numerous substantial exemptions from the Tax based on the:

  • Category of owner;
  • Availability of the residential property;
  • Location and use of the property; and
  • Occupancy of the property.

While not required to pay the Tax, it is extremely important that these affected owners still file a Return for each property. The Act sets out extremely severe penalties for failing to do so.

Individuals face a minimum penalty of $5,000 and corporate entities a minimum of $10,000 for failing to file a Return. This penalty could conceivably apply to each of the properties an owner fails to file for.[3] Further, any person who fails to file a return is guilty of an offence under the Act and could be liable for an additional fine of $2,000 to $40,000 or imprisonment for up to 12 months.[4]

Who is Affected?

The Act generally applies to a person each year if they are an owner of one or more residential properties on December 31 of that year.

Residential property includes detached houses, semi-detached houses, rowhouse units, residential condominium units and other similar premises, and the immediately adjacent lands reasonably necessary for the property’s use as a place of residence. Importantly, the definition of residential property in the Act excludes buildings with 4 or more dwelling units, unless those dwelling units are individually titled (i.e. condominium units). This means that an apartment building owned as a single parcel of property will not be subject to the Act. 

As mentioned, the Act labels a few broad categories of owners as “excluded owners”. These persons are not required to file any Returns or pay the Tax. Excluded owners include the following persons:

  • Individuals who are a citizen or permanent resident (unless holding the property as a trustee or as a partner of a partnership);
  • Publicly traded Canadian corporations;
  • Persons holding property as trustee of a mutual fund trust, real estate investment trust or SIFT trust (“Specified Trusts”);
  • Registered charities;
  • Cooperative housing corporations, hospital authorities, municipalities, public colleges, school authorities, universities or para-municipal organizations for GST/HST purposes; and
  • Indigenous governing bodies or corporations wholly owned by such bodies.

Everyone else is considered an affected owner. Affected owners therefore include the following broad categories of persons:

  • Canadian non-residents;
  • Private corporations;
  • Non-resident corporations;
  • Persons holding property as a partner of a partnership; and
  • Persons holding property as trustee for a trust, other than the Specified Trusts referenced above.

All these categories of person will need to file a Return in respect of each residential property and consider whether the Tax actually applies.

Is the Owner Otherwise Exempt?

Despite being an affected owner and needing to file a Return in respect of a residential property, the Tax will not apply to the owner in respect of that property if they are:

  • A specified Canadian corporation[5];
  • A partner of a specified Canadian partnership[6];
  • A trustee of a specified Canadian trust[7];
  • A new owner who became the owner of the property in the calendar year and was not an owner of that property in the previous 9 years;
  • An individual who died during the year or the previous year, so long as that individual owned at least 25% of the property at the time of death; or
  • A personal representative of a deceased individual who owned the property in the calendar year, or the previous year, where the personal representative was not otherwise an owner of the property in either of those years.

It is important to note that each owner of the residential property will need to make their own assessment. Where there is more than one owner, it is certainly possible that one owner will not owe the Tax on that property while another does.

If an owner is not exempt, certain residential properties may still be excluded from the application of the Tax. Part 2 of this series will address property-specific exclusions, including how to determine whether a property is “underused”. It will conclude with drafting tips to ensure a landowner can obtain information from residential tenants necessary to prove occupancy of the property.

If you have any questions regarding the Underused Housing Tax, any of the members of our McLennan Ross Corporate Commercial Law team would be happy to discuss.


[1] The tax will apply to the taxable value of the property unless an election is filed to use the fair market value instead: Underused Housing Tax Act, SC 2022, c 5, s 10 [UHTA].

[2] “Person” includes corporate entities.

[3] UHTA, supra note 1, s 47(1).

[4] Ibid, s 53(1).

[5] Corporations incorporated in Canada who have less than 10% foreign ownership (ibid, ss 2, 6(7)).

[6] A partnership where all the partners are specified Canadian corporations or would be excluded owners if not for the partnership (ibid).

[7] A trust where all beneficiaries are excluded owners or specified Canadian corporations (ibid).