The Underused Housing Tax is an annual 1% tax on the ownership of vacant or underused housing in Canada that took effect on January 1, 2022. The tax requirement applies to any corporation, trust or estate which holds residential property, and although most property owners will be excluded, certain estates and trusts holding real property will be affected.

Based on the definitions in the UHT Act, there is distinction in the treatment of trustees vs. executors. Whereas trustees are specifically excluded from the definition of an 'excluded owner' (meaning any transfer of a residential property from a Canadian citizen or permanent resident to a trustee of a trust will automatically result in the loss of excluded owner status), executors are not (meaning such a transfer may or may not result in the loss of 'excluded owner' status).

It will be interesting to see how the CRA interprets and applies the new rules, but in the interim it is crucial that both trustees and executors are aware of the Act, as there are significant penalties for those who fail to file the UHT return on time. Affected owners who are individuals are subject to a minimum penalty of $5,000, and affected owners that are corporations are subject to a minimum penalty of $10,000.

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This article is intended for information purposes only and should not be taken as the provision of legal advice. Grace C. Cleveland is a lawyer with the law firm of Cleveland Doan LLP and can be reached at (604)536-5002 or grace@clevelanddoan.com.