Canada’s Underused Housing Tax (UHT)

Introduction
Understanding Canada’s Underused Housing Tax is essential for homeowners, real estate investors, corporations, trustees, and non-residents who own residential properties in Canada. The UHT is a federal annual tax targeting vacant or underused homes, particularly those owned by non-residents. However, the law applies far more broadly than most Canadians realize. Many Canadian citizens and Canadian corporations must still file a UHT return even if no tax is owed. Penalties for failing to file start at $5,000 for individuals and $10,000 for corporations—per year, per property. This guide explains everything you must know about Canada’s Underused Housing Tax, including filing rules, exemptions, penalties, documentation, and CRA audit risks.

Legal and Regulatory Framework
Canada’s Underused Housing Tax is governed by:

• the Underused Housing Tax Act (UHTA)
• CRA UHT filing requirements
• CRA Form UHT-2900 – Underused Housing Tax Return
• definitions under the Income Tax Act
• partnership and trust rules
• beneficial ownership and title registration rules

The UHT is not the same as:

• Vancouver’s Empty Homes Tax
• Toronto’s Vacant Home Tax
• Speculation and Vacancy Tax (BC)

UHT is a federal tax with its own rules and penalties.

1. Who Must File a UHT Return? (This Is Where Most Get It Wrong)

The biggest misunderstanding about Canada’s Underused Housing Tax is that only foreigners must file.
WRONG.

The following must file UHT returns every year unless they are “excluded owners”:

You must file UHT if you own property under:

• a Canadian corporation (even if 100% Canadian-owned)
• a family trust
• a Bare trust or nominee agreement
• a Partnership
• a Private corporation (CCPC)
• a Joint-ownership structure with a corporation
• a Numbered company
• a Real estate holding company

You also must file if you are:

• a non-resident
• a non-Canadian citizen
• a non-Canadian permanent resident
• a foreign corporation
• a foreign-owned trust

Excluded owners (no filing required):

• Canadian citizens
• Canadian permanent residents
• Publicly traded corporations
• Municipalities & Indigenous bands
• Registered charities
• Certain government entities

BUT:
If your home is held through a corporation, trust, or partnership, you MUST file—even if you’re Canadian.

2. What Properties Are Subject to UHT?

Canada’s Underused Housing Tax applies to residential properties, including:

• condos
• houses
• semi-detached homes
• townhouses
• duplexes / triplexes / fourplexes
• laneway houses
• cottages
• cabins
• Airbnb units
• newly purchased pre-construction units (after occupancy certificate issued)

UHT does not apply to:

• large apartment buildings
• hotels and motels
• student residences
• nursing homes
• commercial properties

3. UHT Filing Deadlines

The UHT return must be filed by:

April 30 every year

The tax applies for the previous calendar year.

Penalties apply even if no tax is owing.

4. UHT Tax Rate

Tax rate = 1% of the property’s value
Calculated using:

• assessed value (municipal) OR
• most recent sale price OR
• CRA-approved appraisal

Whichever method gives the lowest tax may be chosen.

5. UHT Exemptions (File First, Claim Exemption Second)

Even if you are required to file a UHT return, you may still be exempt from the 1% tax.

Common UHT exemptions include:

A. Primary Residence Exemption

If the home is lived in by:
• you
• your spouse
• your child (for school in Canada)

B. Qualifying Occupancy Exemption

Property occupied for at least 180 days per year by:
• tenants on arm’s-length basis
• family members (in some cases)
• long-term rentals (NOT Airbnb)

C. Newly Purchased Property

If you bought it during the year and were not required to occupy it yet.

D. Newly Constructed Property

If still under construction or uninhabitable.

E. Death of Owner

Exemption applies for the year of death and following year.

F. Disaster or Hazard

Floods, fires, major damage.

G. Listed for Sale

Under reasonable efforts to sell.

H. Seasonal Inaccessibility

Remote cabins inaccessible for much of the year.

If you qualify for one exemption, you still must file unless you are an excluded owner.

6. Penalties for Not Filing UHT Returns

Penalties are extremely severe:

Individuals:

• Minimum $5,000 per year per property

Corporations, trusts, partnerships:

• Minimum $10,000 per year per property

AND:

• Interest accumulates
• CRA may deny exemptions
• CRA may assess full 1% tax automatically
• CRA may issue gross negligence penalties
• CRA may audit beneficial ownership structures

Missing 2 years can lead to $20,000+ fines for a single property.

7. Documentation Required for UHT Compliance

Keep:

• property titles
• partnership agreements
• trust deeds
• shareholder structures
• municipal assessment files
• tenancy agreements
• occupancy evidence
• utility bills
• listing agreements (if property was for sale)
• damage/disaster reports
• construction timelines

Documentation must be retained for at least six years.

8. Audit Triggers for UHT

CRA flags owners for audit when:

• property is owned through a corporation or trust
• missing UHT returns
• inconsistent rental income filing
• foreign ownership name indicators
• empty homes with low utility usage
• properties rented short-term only (Airbnb)
• ownership transfers between family members
• nominee/bare trust arrangements

Québec owners face higher scrutiny due to strict residential compliance rules.

Mackisen Strategy

Mackisen CPA provides full UHT compliance support:

• determining whether you must file
• preparing UHT-2900 returns
• claiming all available exemptions
• documenting occupancy and rental activity
• filing late UHT returns with penalty mitigation
• representing clients during CRA UHT audits
• reconstructing beneficial ownership structures
• advising on corporate ownership restructuring to reduce UHT risk

We ensure you stay compliant while minimizing tax exposure.

Real Client Experience

Examples from Mackisen’s UHT cases:

• A Canadian citizen held a condo in a corporation. CRA fined $10,000. Mackisen filed late UHT returns and removed penalties.
• A family trust owned a rental property without filing UHT. We reconstructed filings and eliminated the 1% tax.
• A non-resident owner mistakenly believed Airbnb counted as occupancy. CRA reassessed. Mackisen provided legal exemption documentation.
• A Québec immigrant family held a home in joint ownership. CRA queried residency. Mackisen defended PRE and UHT exemptions.
• An investor owned six condos through a partnership. We filed all UHT returns and secured qualifying occupancy exemptions.

Common Questions

• Do Canadian citizens have to file UHT?
Not if they own property personally. But if using a corporation, trust, or partnership—YES.

• Is my home exempt if I live in it?
Yes—but you may still need to file if not an excluded owner.

• Is Airbnb considered occupancy?
Usually NO—short-term rentals do not qualify for occupancy exemption.

• What if I forget to file?
Penalties start at $5,000–$10,000 per property per year.

• Can CRA waive UHT penalties?
Possible with taxpayer relief—but requires strong documentation.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps homeowners, real estate investors and corporations stay compliant with Canada’s Underused Housing Tax. Whether you need UHT filing, exemption analysis, penalty relief, or audit defense, our expert team ensures full compliance, accuracy, and protection from costly mistakes.