What’s the new tax for homeowners?
This new law requires certain owners of residential buildings in Canada to file annual declarations, i.e. every calendar year. The Underutilized Dwelling Tax, or UDT, is an annual tax of 1% on the value of vacant or underutilized residential properties. It mainly targets non-resident and non-Canadian homeowners as of December 31 of each year, and comes into effect now.
While most Canadians and Canadian entities won’t have to pay any tax to the Canada Revenue Agency, many will still be required to file a UBIT return. This will be the case, among others, for Canadian companies that own a residential building in Canada with three units or less.
When does the tax on vacant dwellings apply?
The first TLSU return had to be filed by April 30, 2023, but, exceptionally, the CRA has waived any penalty for taxpayers who file the form by October 31, 2023. However, this will not be the case for the next few years.
Who must file a return with the Canada Revenue Agency?
There is a specific category of people who must file a TLSU declaration. Here’s why.
Step 1 – Do you own a residential building of 3 units or less in Canada?
Note that an owner is the person identified as the owner in the land registration system.
- If yes, go to step 2;
- If not, you do not need to file a TLSU declaration.
Not all owners of residential buildings of three units or less in Canada are exempt from this obligation. Non-residents, non-Canadians and even some Canadians or Canadian entities may be affected by this reporting obligation. In addition, even if you are a reporting owner on December 31, you must file an annual return, even if you are entitled to an exemption.
- Owners acting as trustees of a trust are also required to declare.
- Owners of more than one residential building must file a declaration for each building.
Step 2 – Are you an “excluded owner”?
Excluded owners are not subject to the TLSU, nor do they file an annual return with the CRA.
The owners excluded, or with an exemption, are as follows:
- An individual who is a citizen or permanent resident, except:
- An individual owner as a partner in a partnership
- An individual owner as trustee of a trust
- A corporation incorporated in Canada, whose shares are listed on a stock exchange in Canada, or a mutual fund trust.
- A registered charity
- Other public owners (municipalities, universities, schools, hospitals, etc.)
If you’re an excluded owner, you’re exempt and don’t have to file a TLSU return.
On the other hand, if you are not an excluded owner, you must file a TLSU declaration.
Note: An obligation to file a declaration does not mean that the tax is payable, since some owners are also exempt. However, Form UHT-2900 must be filed by April 30 for the previous calendar year.
Are you exempt from paying the 1% tax?
If the criteria for one of the following exemptions are met, no fee is payable, but the form must still be submitted.
Exemptions for the following Canadian entities :
- Specified Canadian corporation (SCC): A corporation is a SCC if it is incorporated in Canada and 10% or less of its shares are held by an individual who is neither a citizen nor a resident, or by a corporation incorporated outside Canada.
- Individual owner as a partner in a specified Canadian partnership (SCP): A partnership is a SCP if each partner is an excluded owner (i.e., a Canadian citizen or permanent resident) or a SINC.
- Individual owner as trustee of a Canadian specified trust (SCT): A trust is a SCT if each beneficiary is an excluded owner (i.e., a Canadian citizen or permanent resident) or a PMCD.
Other exemptions :
- New owner later this year.
- A residential building that is not suitable for year-round occupancy or is inaccessible during certain seasons because public access is not maintained year-round.
- A residential building uninhabitable due to a disaster (at least 60 days) or major renovations (at least 120 days).
- The residential property is used as the primary place of residence of the individual, the individual’s spouse or a child studying in Canada. If the individual owns more than one residential property, he or she may designate only one.
- The residential building is occupied for at least 180 days in the year by an eligible person (only periods of continuous occupancy of at least one month can be considered). An eligible person is :
- A non-bonded individual (written contract required);
- A non-arm’s length individual, provided the rent paid reflects FMV;
- The owner or his/her spouse who is in Canada for employment purposes;
- The owner’s parents, spouse or children, if they are citizens or permanent residents.
- The residential building was not substantially completed until April of the year in question.
- The residential building was completed between January and March, was offered for sale to the public during the year, and was never occupied by a private individual during the year.
- The person died during the calendar year or during the previous year.
- The residential building is located in a prescribed region.
Penalties
Anyone who fails to file a TLSU return for April 30 while not an excluded owner will be liable to pay a penalty equal to the greater of the following amounts:
- 5,000 for individuals;
- 10,000 if the person is not an individual;
- 5% of the tax payable for the calendar year + 3% per month of delay.
Other penalties
If the delay in filing the TLSU declaration exceeds December 31 of the following calendar year (for example, if the declaration in respect of a property held at december 31, 2022 is not filed by December 31, 2023), exemptions from tax payment based on occupancy of the building will not be available to the taxpayer, and he will incur further penalties.
Where can I find the TLSU form (UHT-2900)?
You can find it directly on theARC website.
Warning
This document is only a summary of the rules and you should consult your tax advisor for any position on TLSU. Information is based on the Act as of March 31, 2023. The laws are also different for Canadian homeowners in the United States.
