Canada to Eliminate the Underused Housing Tax — What That Means for You
Introduction
In the 2025 federal budget, the Canadian government announced it will stop applying the Underused Housing Tax (UHT) starting in the 2025 taxation year.This change is a major development for property owners, non-residents, and advising professionals.
What is the Underused Housing Tax?
The UHT was introduced in legislation and came into effect on January 1, 2022.
It imposed a 1% annual tax on the value of certain vacant or under-used residential properties in Canada.
It was primarily aimed at non-resident, non-Canadian owners, including foreign individuals, corporations or trusts that held residential properties in Canada and left them vacant or under-used.
Reporting obligations applied: even if the tax was not payable (for example if exemptions applied), a UHT return typically had to be filed annually. Failing to file could result in penalties.
What’s Changing:
Here are the changes announced in Budget 2025 relevant to the UHT:
For calendar years 2025 and subsequent years, no UHT will be payable and no UHT returns will be required.
However, the rules for the years 2022-2024 remain in force: returns, payments, penalties, and interest for those years still apply.
The UHT Act and its regulations are proposed to be fully repealed effective January 1, 2035.
Implications for Property Owners & Investors
What does this mean in practice for different stakeholders?
Non-resident owners who held subject properties and may have faced the 1% tax or the filing requirement: the relief from 2025 onward is significant. But they must ensure they have met obligations for 2022-2024.
Canadian residents or corporations less directly targeted by UHT may still have had exposure via trusts or corporate ownership structure. These changes open fresh planning opportunities.
Advisors and tax professionals need to assist clients in confirming whether they were subject during 2022-2024, whether returns were filed, and whether any penalties or interest remain.
Municipal / provincial taxes: It’s important to note that eliminating the federal UHT does not affect provincial or municipal property vacancy/under-use taxes.
What To Do Now: Action Check-List
Here are recommended steps you (or your clients) should take:
Review any properties owned that might have triggered UHT for 2022-2024. Ensure returns were filed and taxes paid (or exemptions appropriately claimed).
Confirm that for calendar year 2025, no UHT liability arises. Ensure you stop the UHT process, but document the change and keep records.
Consider whether property ownership structure or trust/corporate vehicles used for Canadian real estate can now be revisited in light of reduced federal tax burden.
Don’t forget to check for provincially or municipally imposed vacancy/under-use taxes (which remain independent).
Seek advice if there were penalties or interest still outstanding for the earlier years: these obligations do not vanish simply because the UHT is eliminated for future years.
Why the Change?
According to government commentary and tax-law firm analyses:
The UHT was described as “costly to administer” and projected to yield only about CA$30 million per year in lost revenue by its elimination. Lexology+1
Elimination is part of a broader government effort to simplify the tax system, reduce compliance costs for taxpayers, and reduce administrative burden on the Canada Revenue Agency (CRA).
Conclusion
The elimination of the Underused Housing Tax represents a meaningful shift in Canadian tax policy for real-estate ownership. For many owners and investors, it opens up planning possibilities and removes a compliance headache from future years. That said, the obligations for prior years remain real and must be managed carefully.
Disclaimer
This article is intended for informational purposes only and does not constitute tax or legal advice. Individual circumstances vary; you should obtain professional advice based on your specific situation.