Reminder regarding the Underused Housing Tax

October 25, 2023

Licensed Insolvency Trustees (LIT) should be aware of the Underused Housing Tax (UHT), an annual federal 1% tax on the ownership of vacant or underused housing in Canada, that took effect on January 1, 2022 pursuant to the Underused Housing Tax Act (UHTA). The tax generally applies to foreign national owners of housing in Canada. However, in some situations, this tax also applies to some Canadian owners (such as certain partners in a partnership, trustees, and corporations). Based on the Canada Revenue Agency’s (CRA) general guidance, an LIT may be an affected owner of a residential property under the UHTA and may be required to file a return and pay the UHT.

The CRA provides general guidance on their website on the UHT, including who must file a return and pay the UHT. The owner of a residential property, as defined in the UHTA, was required to file a return and pay the UHT by April 30, 2023, however, on March 27, 2023, CRA sent a notice that penalties and interest under the UHTA for the 2022 calendar year would be waived, provided that the return is filed and UHT is paid by October 31, 2023.

The Office of the Superintendent of Bankruptcy (OSB) and the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) have requested clarification from CRA on the application of the UHTA and UHT requirements specifically for LITs. The OSB will notify LITs as soon as clarification is received.

Considering the October 31 deadline, CAIRP provided some initial guidance to their members which the OSB would like to pass along to all LITs. Under the UHTA, ownership is mainly determined by the information on the land registration system applicable where the residential property is located, therefore there are two scenarios: 

  1. The LIT exercises their right to register an ownership interest on title in the Land registration system and they remain on title on December 31st of the calendar year, then the Trustee would be considered an owner for the purposes of UHTA. It is very important to note that if the Trustee goes on title on January 1st and goes off title on December 15th of that calendar year, the Trustee has no obligation as an owner, under UHTA, because they were not an owner on December 31st of that calendar year. The CRA advises the dates are important. Based on the assumption that the Trustee exercises their right to go on title and they are on title on December 31st of the calendar year, under most circumstances the Trustee itself would be an affected owner and the Trustee would have to file an underused housing tax return for the residential property and possibly pay the UHT. Trustees who were on title of affected residential property on December 31st, 2022 should review the UHTA to assess their obligations with the specific circumstances of each estate. 
  2. The LIT does not exercise their right to register an ownership interest and the Bankrupt stays on title. If the bankrupt is on title on December 31st of the calendar year, the LIT is still liable to file any return up to the day of the bankruptcy. The LIT should therefore assess whether the bankrupt was an affected owner at any time prior to the bankruptcy and whether the return was filed. If the bankrupt is an affected owner they are required to file an UHTA return and possibly pay the UHT for the period beginning the day after the day of the bankruptcy.

Questions may be directed to CRA by telephone at 1-800-959-5525 or by fax at 1-418-566-0319.