Since prices are skyrocketing in urban areas. This makes it difficult for individuals and families to find suitable housing. This housing affordability in Canada is still a significant concern. Individuals and businesses must follow rules brought about by the changing tax landscape. The Underused Housing Tax (UHT) is a notable regulation during these changes.
Yogi & Associates is an expert in demystifying intricate tax laws. Because the tax landscape shifts, we will leave you with UHT details in our blog.
Updated Underused Horsing Tax Act:
1. What is The Underused Housing Tax Act?
3. The Primary Focus of The Underused Housing Tax Act:
4. Who Has To File The Underused Housing Tax Return?
5. Who is Exempt from Underused Housing Tax?
6. How Do you File an Underused Housing Tax?
7. What Are The Penalties for Filing Late UHT?
1. What is The Underused Housing Tax Act:
The Federal budget for 2021 included the UHT. It became operative on January 1, 2022. It is a 1% yearly federal tax. This act is for those not rented or occupied for more than six months a year. Usually, it is for non-Canadian owners and non-residents of Canada. But, it does apply to Canadian owners in certain circumstances.
2. How Does It Work?
The tax act’s regulations differ depending on where in Canada you live. If a property is unoccupied or underutilized, the owner must report it on their tax returns. Notifying the government at the time of tax filing is must. Thus, they will get a penalty for failing to report an underutilized property or pay the required tax.
3. The Primary Focus Of Underused Housing Tax:
The main purpose of this tax act includes few things which are as follow:
Promoting Efficient Use:
The main aim of the tax is to deter real estate speculation. Owners of underutilized properties have incentives to sell, rent out, or occupy them. This expands the available housing supply.
Reducing Housing Shortages:
The tax attempts to reduce housing shortages, particularly in high-demand urban areas, by reintroducing vacant properties into the rental or ownership market.
Economic Efficiency:
The tax increases economic efficiency by discouraging property hoarding. It promotes the valuable use of real estate assets.
4. Who Has To File The Underused Housing Tax Return?
- Both non-residents of Canada and owners of underutilized property must file the tax.
- The majority of private Canadian businesses that have a range of residential properties
- Individuals with residential real estate but are not Canadian citizens or permanent residents.
- If you’re in charge of a trust that holds residential property (except for some instances).
- Members of a partnership with residential real estate as its ownership.
- Affected owners must file an Underused Housing Tax Return and Election Form. This form determines the amount of UHT they must pay or whether they are eligible for exemptions.
- Properties occupied for less than 180 days a year are subject to the UHT. This covers a range of housing types, such as townhomes, duplexes, triplexes, apartments, and similar structures.
Note:
Individual tax numbers (ITNs) or Canadian social insurance numbers must file returns. To finish your UHT returns and payments, you must apply for an ITN or SIN as soon as possible if you still need one. Companies must register for a UHT program account and get a business number.
5. Who is Exempt from Underused Housing Tax?
Even if you have to file a UHT return, there are cases where you may not have to pay the tax.
- If you live in a home full-time or if your spouse, partner, parent, or student child does.
- If your home’s under renovation, unusable, evacuated due to a disaster or poses a safety risk.
Note:
Filing the required paperwork for property owners is a hassle despite these exclusions. Discuss your circumstances with an advisor to determine if you need to file the tax return.
6. How Do you File an Underused Housing Tax?
There are a few steps you need to follow to complete the process:
Gather Your Documents:
Get all the documentation you must. It includes property records, name of owner and any evidence to spare you from paying this tax.
See Your Eligibility For An Exception:
Check whether your home qualifies to avoid paying the Underused Housing Tax.
Use The Internet To Look For Help:
For more information about the Underused Housing Tax, visit the CRA website. You will receive instructions on how to file and locate available resources.
Online File:
Submit your Underused Housing Tax form online through the CRA’s electronic filing portal. It’s a hassle-free way to submit your information.
7. What Are The Penalties for Filing Late UHT?
There are two minimum penalties for each individual and the corporation:
- Individuals who file late their tax get a minimum penalty of $5,000.
- Corporations filing their UHT late get a penalty of minimum $10,000.
This is how the total amount you might need to pay determines:
- A total of five percent of the annual property taxes that you owe.
- Also, 3% of your outstanding balance for your tax return is late for each complete month.
- Understanding tax effects, who must file, and who is liable for the payment is essential.
8. How Do you Calculate the Underused Housing Tax?
Your home’s value calculates the Underused Housing Tax (UHT) each year. The UHT uses the higher value to consider the property tax assessment or its last sale price.
Another option is to use the property’s fair market value. To find your UHT, multiply your ownership percentage by the property’s value and then by a 1% tax rate.
9. Good News: A New Change in The UHT Act:
The plan was to end this act. Yet, the government decided to loosen the tax laws in October 2023. The good news for those who must pay the tax is that the time limit for these regulations has been extended. The government is renewing it through April 30, 2024.
This extended period benefits those who must submit their Underused Housing Tax forms for 2022. Until April 30, 2024, real estate owners have a significant time extension. They can gather all the necessary documentation, better understand the regulations, and complete their tax obligations without worrying about incurring more costs.
The Bottom Line:
One approach to increase housing availability and equity is the Underused Housing Tax. It wants properties to be well-utilized to ease the housing scarcity. Yet, over time, its effectiveness may vary. Encouraging property owners to use their assets is the key to a more fair housing market. As it aids without creating new issues, you must continue observing and adjusting it. This blog has contributed to a better understanding of the Underused Housing Tax. Yogi & Associates can assist you with taxes and any other questions.
