Calculating the Underused Housing Tax Payable

Underused Housing Tax Notice UHTN2

January 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
• Reminder
• How to calculate the tax payable
  • What is your ownership percentage
  • Calculating the tax payable using the taxable value – the general rule
    • Assessed value established by an authority
  • Calculating the tax payable using the fair market value – election required
    • What is fair market value
    • Electing to use fair market value
    • How to file the election
• 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.

Reminder

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.

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.

To help you determine if your ownership of a residential property is exempt from the underused housing tax for a calendar year, refer to the various Underused housing tax notices.

How to calculate the tax payable

The tax rate of the underused housing tax is 1%. Generally, to calculate the underused housing tax payable, each affected owner of a residential property has to apply the 1% tax rate to the value of the residential property and then apply their respective ownership percentage of the residential property.

As explained below, the value of the residential property is either the taxable value or the fair market value.

What is your ownership percentage

If you are an affected owner of a residential property on December 31 of a calendar year, your ownership percentage of the residential property for the calendar year is determined as follows:

• if you are the only owner of the residential property, your ownership percentage of the residential property is 100%
• if you are one of several owners of the residential property, your ownership percentage of the residential property is either of the following:
  • the percentage of your ownership as indicated in the land registration system
  • 100% divided by the number of owners, if no percentage is indicated in the land registration system

Calculating the tax payable using the taxable value – the general rule

If you are an affected owner of a residential property on December 31 of a calendar year, the general rule for calculating your underused housing tax payable for the residential property for the calendar year is to multiply 1% by the taxable value of the property and then multiply that result by your ownership percentage of the property.

The taxable value of the residential property for a calendar year is the greater of the following amounts:

• the value of the residential property established by an authority that has the power to establish the assessed value of property for purposes of calculating a property tax
• the residential property’s most recent sale price on or before December 31 of the calendar year

Assessed value established by an authority

Provincial or territorial assessment and property tax regimes vary across Canada. Under a typical assessment and property tax regime, an authority establishes the assessed value of residential properties in its jurisdiction and sends property assessment notices (or similar documents) to the owners. The authority also sends the assessed value of the residential properties to the applicable municipality. The municipality calculates the property tax for residential properties by applying municipal tax rates to all (or part of) the assessed value of the residential properties and then sends property tax bills to the owners.

A property assessment notice (or similar document) and a property tax bill are generally two separate and distinct documents. However, in some parts of Canada, the property assessment notice and the property tax bill may form one single document.

The assessed value of the residential property, as established by the authority, may not necessarily be the same as the value used by the municipality to calculate the property tax. In some parts of Canada, the property tax may be calculated on only part of the assessed value established by the authority.

Calculating the tax payable using the fair market value – election required

If you are an affected owner of a residential property on December 31 of a calendar year, you may elect to use the fair market value of the residential property instead of its taxable value to calculate your underused housing tax payable for the residential property for the calendar year.

What is fair market value

The Canada Revenue Agency (CRA) has guidelines and criteria under the goods and services tax/harmonized sales tax (GST/HST) to determine the fair market value of real property. Similar guidelines and criteria may be used for purposes of the election to calculate the underused housing tax payable using the fair market value of a residential property.

Generally, fair market value is the highest price, expressed in terms of money or money’s worth, obtainable in an open and unrestricted market between knowledgeable, informed and prudent parties that are acting at arm’s length, neither party being under any compulsion to transact.

Electing to use fair market value

If you want to use the fair market value of a residential property to calculate your underused housing tax payable for the residential property for a calendar year, you have to file an election with the CRA. You may determine the fair market value of the residential property at any time on or after January 1 of the calendar year and on or before April 30 of the following calendar year, but the election has to be filed with the CRA by April 30 of the following calendar year.

If you are an affected owner of a residential property on December 31 of a calendar year and you file an election with the CRA to use the fair market value of the residential property, your underused housing tax payable for the residential property for the calendar year is calculated by multiplying 1% by the fair market value of the property and then multiplying that result by your ownership percentage of the property.

How to file the election

You may make the election for a residential property in your return filed for the residential property using Form UHT-2900, Underused Housing Tax Return and Election Form.

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.

Further information