Canadian homeowners should be ready to fulfil the housing taxes in the upcoming tax season. The housing market in Canada has faced immense scrutiny for taxes on discouraged housing in recent years because the affordability and availability of housing have become problematic for most Canadians.
To overcome the challenges faced by the people, the federal government has introduced the Underused Housing Tax (UHT). Therefore, understanding Canada’s underused housing tax has become important for owners in 2025.
The Underused Housing Tax (UHT) is a tax policy that targets discouraging property from speculation. This is intended to increase the supply of housing properties available for residents. The UHT policy continues and will continue to evolve and expand its horizons. The changes made in 2025 are of great importance for owners as they bring updates and fresh considerations for property owners. Here is what owners must know in 2025:
What Is The Underused Housing Tax?
Before we pinpoint the changes made in the UHT Act in 2025, let us give you a quick overview of what is articulated in the Underused Housing Tax. In simpler words, it is an annual federal tax that was initially implemented in 2022 to target the ownership of vacant or underused residential properties in Canada.
What Are The Housing Challenges In Canada
Why was this policy made? The policy was aimed at addressing and solving the issue of housing affordability and availability in most residential areas of Canada. It incentivises property owners to either occupy or rent out their properties rather than leaving them empty or underutilised. In order to avoid taxes, property owners will rent out or utilise their properties in the best way possible.
The tax is mainly applied to people who are non-resident or non-Canadian owners who own these properties. However, the tax application also extends, but in limited circumstances, to certain Canadian owners as well.
Underused Housing Tax rate
The Underused Housing Tax rate is fixed at 1% of the property’s taxable value. However, in most cases, it is greater than the property’s assessed value for tax purposes. In other cases, the tax authorities consider the most recent sale price of the property to value the 1% tax rate.
It doesn’t happen on its own, so the affected property owners must file for the underused housing tax when they file their tax returns to the CRA (Canadian Revenue Agency). This has to be done even if they don’t owe any tax due to exemptions.
The Impact Of UHT On The Canadian Housing Tax System
The UHT Act is to target these owners to utilise or divest their properties to the maximum extent. This step increases the availability of housing for Canadians in need. Since the policy was enforced in 2022, the Canadian Revenue Agency has assessed around $30 million in UHT from affected owners.
This happened through compliance efforts by the authorities, as the implementation even projected revenues from the tax at nearly $700 million over the next five years. A stepping stone for greater utilisation of housing policies in Canada.
Canada’s Underused Housing Tax Policy Changes In 2022 – 2025
- On June 20, 2024, Bill C-69 made major changes to the UHT ACT. The amendments have modified definitions of excluded owners, thereby broadening exemptions with special provisions for Canadian entities and owners. These amendments have retroactive application from January 1, 2022, meaning many owners must reassess their previous filings and perhaps even consider a fresh filing under the new rules.
- Interestingly, the CRA has reduced minimum penalties for late filing on and after 2024, starting to provide an impetus for compliance. Clearer provisions in the Act ensure greater guidance on ownership in multiple capacities and lend certainty to the status of either joint or corporate ownership in respect of residential properties.
- Supplementing the efforts originating from the UHT, the federal government has pursued several additional measures at the provincial and municipal level, including the first introduction in 2025 of a 10% non-resident buyer tax in Ontario, along with the ongoing federal ban against foreign purchases of homes until 2027, thus making speculative ownership in the Canadian housing market even more difficult.
Bill C-69’s changes also brought in:
- An employee accommodation exemption where properties used to house staff in prescribed areas now qualify for relief.
- Amended rules for vacation properties leading to adjusted (often lower) penalties.
- Limits on how many vacation exemptions an individual or couple can claim from 2024 onward.
CRA’s Updated Guidance
In January 2025, the CRA put out yet another updated guidance document, namely, the Notice UHTN1. This replaced the one released in May 2023. This document reiterates and clarifies the new definitions not applicable to the owners, “specified” Canadian entities, and multiple ownership by one person, for instance, having property ownership in a personally owned and separately owned trust.
Who Must Pay and File For Canada’s Underused Housing Tax
Residential owners of Canadian properties must determine their status under the UHT by December 31 every year. There are three possible categories as follows:
- Affected owners will file a UHT return and may pay the tax.
- Excluded owners are neither exempt from filing nor paying the tax.
- Exempt owners will file and apply the exemptions that keep them from paying tax for that year.
Affected ownership includes individuals, corporations, trusts, and partnerships with some specific capitalisation multiple with retroactive effect from January 1, 2022, since ownership in multiple capacities becomes applicable.
For instance, an owner possessing the same piece of property both as a trustee and as a direct owner files it separately for each role. Important exclusions apply to almost all Canadian citizens and permanent residents, unless very limited exceptions apply for particular kinds of corporate ownership.
Filing requirements require a separate return for each residential property owned and in joint ownership situations. This means each co-owner must file their own return. Returns and payments for the previous calendar year are all due by April 30 of the year in question.
The CRA penalises quite severely for failure to file and for late filing. This penalty means the fine starts at $1,000 for individuals and $2,000 for corporations per property, and increases with interest and additional penalties if taxes are owing.
Who’s Exempted From the Underused Housing Tax?
The UHT has a few important exemptions that are aimed at balancing policy objectives with practical considerations. Some important exemptions for the 2025 tax year include the principal residence, occupancy, new ownership, or construction. Here is a list of who and what are off the hook from the UHT policy.
- Primary place of residence
- Qualifying occupancy
- New ownership or construction
- Properties unavailable for use
- Vacation properties
- Employee accommodations
- Deceased owner exemption
Properties where an owner lives with their spouse, common-law partner, or child attending a designated learning institution are exempted. Besides, the properties held for at least 180 days of occupancy by tenants or family members paying fair market rent, or the owner, spouse/partner occupied in Canada on a work permit, are also exempted from the UHT.
Conclusion
Canadians should carefully assess their liabilities that come under the UHT. Because even if you are exempt from paying taxes, you may need to file returns annually. This will help you declare your property’s tax status and claim exemptions.
This country is already struggling to tackle the housing crisis. UHT is a critical tool to manage efficient property usage. However, most owners struggle to understand the tax basics and face major penalties.
To avoid such penalties, consider a housing tax expert at Tax Headaches.