Exemptions for New Residential Properties

Underused Housing Tax Notice UHTN13

February 2023

Except as otherwise noted, all statutory references in this publication are to the provisions of the Underused Housing Tax Act (UHTA) and its regulations. The information in this publication does not replace the law found in the UHTA and its regulations.

Table of Contents

• Overview
• The underused housing tax
• Exemption for new residential properties
  • What is substantial completion
• Exemption for new residential properties held as inventory
• Keeping records

Overview

The Government of Canada has introduced an underused housing tax on the ownership of vacant or underused housing in Canada. The Underused Housing Tax Act (UHTA), which governs the underused housing tax, received royal assent on June 9, 2022. The underused housing tax took effect on January 1, 2022.

The underused housing tax

If you are an affected owner of a residential property on December 31 of a calendar year, you have to pay the underused housing tax for the residential property for the calendar year, unless your ownership of the residential property is exempt from the tax for the calendar year.

Where certain conditions are met, your ownership of a residential property may be exempt from the underused housing tax if the property is any of the following: 

• a vacation property that is located in an eligible area of Canada
• used as a primary place of residence or for qualifying occupancy
• not suitable for year-round use
• seasonally inaccessible
• uninhabitable during the calendar year
• newly constructed

Your ownership of a residential property may also be exempt if you are any of the following:

• a partner of a specified Canadian partnership, a trustee of a specified Canadian trust, or a specified Canadian corporation
• a new owner
• a deceased individual, or their personal representative or co-owner

For more information about the above exemptions, refer to the various Underused housing tax notices.

Even if your ownership of a residential property is exempt from the underused housing tax for a calendar year, as an affected owner, you still have to file a return for the residential property using Form UHT-2900, Underused Housing Tax Return and Election Form.

For an explanation of affected owner, owner and residential property, and to determine whether the underused housing tax applies to you, refer to Underused Housing Tax Notice UHTN1, Introduction to the Underused Housing Tax.

Exemption for new residential properties

If you are an affected owner of a residential property on December 31 of a calendar year, your ownership of the residential property is exempt from the underused housing tax for the calendar year if construction of the residential property is not substantially completed on or before March 31 of the calendar year.

What is substantial completion

The Canada Revenue Agency (CRA) has guidelines and criteria under the goods and services tax/harmonized sales tax (GST/HST) to determine when construction is substantially completed. Similar guidelines and criteria may be used for the underused housing tax.

Generally, substantial completion of a residential property means that construction is at a stage of completion (generally 90% or more) that allows an individual to reasonably inhabit the property. A residential property is considered to be substantially completed even if there are outstanding minor repairs, adjustments or upgrades, since this will not reasonably impair the use and enjoyment of the property as a place of residence.

Exemption for new residential properties held as inventory

If you are an affected owner of a residential property on December 31 of a calendar year, your ownership of the residential property is exempt from the underused housing tax for the calendar year if all of the following conditions are met:

• construction of the residential property is substantially completed in January, February or March of the calendar year
• the residential property is offered for sale to the public in the calendar year
• the residential property has never been occupied by an individual as a place of residence or lodging in the calendar year

Keeping records

Every affected owner of a residential property must keep records to enable the determination of their obligations and liabilities under the UHTA. Generally, you must keep the records for six years from the end of the year to which they relate.

If you do not have adequate records to support that your ownership of a residential property is exempt from the underused housing tax for a calendar year, the CRA may disallow your exemption.

Further information