The Underused Housing Tax is a 1% annual federal Canadian tax on the value of residential property that sits vacant or underused, aimed mainly at foreign national owners along with certain private corporations, trustees, and partners.1Canada.ca. Underused Housing Tax It took effect on January 1, 2022, and Ottawa announced in Budget 2025 that affected owners are no longer expected to file returns or pay the tax for 2025 or later years.2Canada.ca. Who Must File a Return and Pay the Tax – Underused Housing Tax Returns for 2022, 2023, and 2024 remain due, and late filers face a minimum penalty of $1,000 for individuals or $2,000 for corporations even when no tax is owed.
Who Has to File
The tax year runs on the calendar. If you owned residential property in Canada on December 31 and you don’t fall inside the Canada Revenue Agency’s list of “excluded owners,” you are an “affected owner” and must file a return for that property, one return per property, whether or not any tax is due.3Canada.ca. Introduction to the Underused Housing Tax
Affected owners fall into a few groups:
- Foreign nationals — anyone who is not a Canadian citizen or permanent resident.4Canada Revenue Agency. Determine if You Are an Affected or Excluded Residential Property Owner – Underused Housing Tax
- Certain specified Canadian private corporations that own residential property.
- Individuals who hold property as a trustee of a specified trust.
- Individuals who hold property through a partnership.
Most Canadian citizens and permanent residents who own their homes personally are excluded owners with no filing obligation. The tax was not written for them.
Which Properties Are Covered
“Residential property” under the Act means a house with a maximum of three dwelling units, together with the land, or a semi-detached house, rowhouse unit, or condominium unit with its land. Each unit in a rowhouse or condo counts separately.
Buildings with four or more units under common ownership, commercial buildings, and bare land without a habitable structure fall outside the tax. There is also a carve-out for condominium buildings where a single owner holds at least 90% of the units and at least 90% of those units provide continuous occupancy of one month or more.2Canada.ca. Who Must File a Return and Pay the Tax – Underused Housing Tax
Exemptions That Zero Out the Tax
An affected owner still has to file, but a qualifying exemption drops the tax owed to zero. The CRA groups them into four categories.5Canada.ca. Factsheet: The Underused Housing Tax – Who Is Exempt from Paying Tax
Occupancy
The most common exemption. If the property is someone’s primary place of residence, or if a qualifying occupant lives there for a sufficient period during the year, the tax does not apply. Homes that are actually being lived in are the point of the exemption.
Location and Use
A vacation property in a designated eligible area of Canada — generally rural or lower-population regions — is exempt if you or your spouse used it for at least 28 days during the year.
Availability
Properties that couldn’t reasonably be occupied are exempt. That includes newly constructed homes not yet occupied, properties unsuitable for year-round habitation or seasonally inaccessible, and homes rendered uninhabitable by disaster, hazardous conditions, or major renovations.
Owner Circumstances
New owners who acquired the property during the year are exempt for that year. If an owner dies during the year, the deceased owner, co-owners, and the estate’s personal representative all qualify for relief.
One catch to know about: if you don’t file the return by December 31 of the year after the tax year, certain exemptions can no longer be used to reduce your penalty calculation.6Canada.ca. When to File the Return and Pay the Tax – Underused Housing Tax Filing late doesn’t just cost you the base penalty; it can also inflate the penalty by stripping out reductions you would otherwise have qualified for.
How the 1% Is Calculated
The tax is 1% of the property’s “taxable value,” and the taxable value is set by statute rather than chosen. It’s the greater of:
- The value assessed by the provincial or municipal property-tax authority, or
- The property’s most recent sale price on or before December 31 of the calendar year.
Whichever figure is higher becomes the base.7Justice Laws Website. Underused Housing Tax Act A property assessed at $500,000 that last sold for $600,000 produces a taxable value of $600,000 and a $6,000 tax bill. A low or stale municipal assessment won’t rescue you if the sale price was higher.
Owners with multiple owners share the tax by ownership percentage, which you report on the return.
Deadline, Penalties, and How to File
Returns are due April 30 of the year after the tax year. The 2024 return was due April 30, 2025. When April 30 falls on a weekend or a CRA-recognized holiday, the deadline shifts to the next business day.6Canada.ca. When to File the Return and Pay the Tax – Underused Housing Tax
Miss it and the penalties kick in automatically:
- Individuals: minimum $1,000 per return.
- Corporations: minimum $2,000 per return.
The Underused Housing Tax Act sets the base penalty at 5% of tax owed, with additional charges the longer the return stays unfiled, and interest accrues on any unpaid balance from the day after the due date. Because the minimum applies regardless of tax owed, an affected owner who qualifies for a full exemption but forgets to file still owes $1,000 or $2,000 just for the missing paperwork.
Filing is done on Form UHT-2900, which the CRA accepts online, by mail, or by fax.8Canada.ca. File the Return – Underused Housing Tax Individuals and corporations can use the CRA’s web-based form without a CRA account; Canadian citizens and permanent residents may also file through My Account or My Business Account. To complete the return, you’ll need the property’s parcel identification number, your individual or corporate tax identification number, your exact ownership percentage, and the property’s physical address and legal description. Keep the filed return and supporting records for at least six years.
The Wind-Down: 2025 and Later Years
Consistent with Budget 2025 and proposed Bill C-15, the CRA does not expect affected owners to file a return or pay the tax for the 2025 calendar year or any year after that.2Canada.ca. Who Must File a Return and Pay the Tax – Underused Housing Tax
What that announcement does not do is forgive the 2022, 2023, and 2024 obligations. Those returns are still in force, and penalties and interest continue to accumulate on anything unfiled. If you acquired Canadian residential property between 2022 and 2024 and never filed, catching up is time-sensitive: every month adds interest, and letting the return slip past December 31 of the year after the tax year can spike the penalty by removing exemption-based reductions.
US Owners of Canadian Property
Americans who own residential property in Canada have a few extra angles to think about beyond the tax itself.
The Foreign Tax Credit Probably Won’t Help
The US foreign tax credit under 26 U.S.C. § 901 covers foreign “income, war profits, and excess profits taxes.”9Office of the Law Revision Counsel. 26 USC 901 – Taxes of Foreign Countries and of Possessions of United States The Underused Housing Tax is a levy on property ownership, not income. IRS Publication 514 states that foreign real and personal property taxes generally do not qualify for the credit, so you likely can’t use UHT payments to offset US tax. The classification of specialized foreign levies can be nuanced, so run it past an international tax professional before assuming either way.
Converting the Amount for US Reporting
If you do need to report or claim the tax on a US return, convert Canadian dollars to US dollars using the exchange rate prevailing on the date the tax was paid or accrued.10Internal Revenue Service. Foreign Currency and Currency Exchange Rates Acceptable rate sources include the Federal Reserve Bank, Treasury’s published rates, and commercial platforms such as xe.com.
FBAR and Form 8938
Directly owned foreign real estate does not trigger FBAR (FinCEN Form 114) reporting.11Financial Crimes Enforcement Network. BSA E-Filing System Form 8938 covers specified foreign financial assets, a category that generally excludes directly held real property. If you hold Canadian property through a foreign entity, trust, or financial account, those structures can trigger reporting once account or asset values exceed the Form 8938 thresholds, which start at $50,000 on the last day of the year or $75,000 at any point during the year for unmarried US-based filers.12Internal Revenue Service. Summary of FATCA Reporting for US Taxpayers
Treaty Relief Applies to Income, Not the UHT
The US-Canada Income Tax Convention gives Canada the primary right to tax income from Canadian real property, and the US provides credits to prevent double taxation on that income.13Internal Revenue Service. United States – Canada Income Tax Convention That protection covers rental income and capital gains on sale. It does not reach the Underused Housing Tax, which is an ownership levy rather than an income tax.