What does the Underused Housing Tax mean for farm owners?

The federal government introduced the Underused Housing Tax (UHT) effective January 1, 2022. The UHT rules require certain owners of residential properties (called affected owners) to file an annual return and pay a one percent annual tax unless an exemption can be claimed. 

The good news is that even though many farmers are included in the definition of affected owners under the UHT, many will qualify for an exemption from the one percent tax. However, it is important to understand that if you fall into this group of affected owners, you will still need to file an annual return to claim the exemption.

What is considered a residential property?

The UHT considers detached and semi-detached houses as residential properties — whether the property is vacant, underused or used year-round is irrelevant for the filing requirement. There are, however, some exceptions. Boarding and lodging houses and mobile homes aren’t considered residential properties for UHT purposes and are therefore excluded from the filing requirement. Also, if you’ve started building a new residence on your property and it isn’t substantially completed (generally 90 percent or more) by December 31 in a year, you don’t have to file a return for that year.

Who is required to file a UHT return?

An affected owner is any Canadian corporation, partnership or trust that owns residential property. This definition excludes Canadian citizens or permanent residents who own property as a sole proprietor, but most other ownership structures are captured under the UHT rules. Each legal owner of a property at December 31, if they are an affected owner, must file a UHT return for that calendar year.

An annual UHT return must be filed for each residential property, by each legal owner.

For example, if a partnership of two Canadian individuals owns three farms with residences, then each individual must file three returns, for a total of six UHT returns. Note that as part of estate administration planning, land transfer tax planning or a property transfer, the legal ownership may be different from the beneficial ownership of the farm. Affected owners are those with legal ownership at December 31 each year and are the ones who are subject to the UHT filing requirements. It is therefore important to be aware of any people being added to the title in a year, as this can result in more UHT returns required than you might have expected.

What are the available exemptions from the one percent tax?

Affected owners of residential properties on a farm will have to file the annual UHT return and potentially pay the UHT. That said, most farmers will find the ownership characteristics or uses of the residential property will allow them to claim an exemption from the one percent tax. If the parties with ownership of the corporation, partnership or trust holding the residential property are Canadian citizens or permanent residents of Canada, this ownership will generally allow an exemption from the tax. Even if some non-Canadian residents are involved, an exemption from the tax may be available based on the use of the property. Common exemptions for use are:

• Primary place of residence
• Qualifying occupancy (The property was occupied by certain parties for at least 180 days in the year, made up of one or more periods that are at least one month long.)
• Renovation or construction (The property was uninhabitable for at least 120 consecutive days in the calendar year or was not substantially completed by April of the calendar year.)

See the full list of available exemptions and details here.