Tax Alert: The Proposed Elimination of the Underused Housing Tax (UHT) for 2025

The federal government’s proposal to eliminate the Underused Housing Tax (UHT) starting in the 2025 calendar year marks a significant shift in the Canadian real estate tax landscape. This decision, announced in the 2025 Federal Budget, provides much-needed relief to Canadian real estate owners who have grappled with the complex compliance and severe penalty structure of the UHT since its introduction in 2022.

However, while the future appears simpler, immediate action is required for past compliance. BOMCAS Canada stresses that all filing and payment obligations for the 2022, 2023, and 2024 tax years remain fully enforceable. Non-compliance for these prior years still exposes Affected Owners to substantial minimum penalties.

1. Is the UHT Cancelled for 2025 and Beyond? (The Big Angle)

The UHT is officially proposed to be eliminated for the 2025 calendar year and all subsequent years.

The legislative changes outlined in the 2025 Federal Budget propose to amend the Underused Housing Tax Act to finalize the end of this compliance regime. This means:

1. No Tax Payable for 2025+: There will be no UHT tax liability in respect of a residential property for the 2025 calendar year or any year thereafter.
2. No Filing Required for 2025+: Affected owners will no longer be required to file the annual UHT return (Form UHT-2900).

This elimination is welcomed by BOMCAS Canada as it simplifies compliance, particularly for Canadian-owned corporations, partnerships, and trusts that were inadvertently caught by the original legislation’s broad scope.

2. Do I Still Need to File a UHT Return for 2024 and Prior Years?

Yes, the obligation to file for all years up to and including 2024 remains absolute.

The UHT elimination is prospective, meaning it only applies to 2025 onward. All requirements for the 2022, 2023, and 2024 calendar years are still in full effect.

Who is an “Affected Owner” for 2024?

An Affected Owner is any person who is not defined as an Excluded Owner under the legislation. If you are an Affected Owner, you must file a return for each property you owned on December 31st of the year, even if you are exempt from the tax.

Common Affected Owners who Must File (for 2024 and prior years):

• Non-Canadians / Non-Permanent Residents who own residential property in Canada.
• Private Canadian Corporations, Partnerships, or Trusts that fall outside the limited definitions of “Excluded Owners.”

BOMCAS Advisory: While legislative amendments expanded the definition of ‘Excluded Owner’ for 2023 and 2024 (relieving many Canadian-owned entities of the filing burden), confirming your status remains complex. If you have not filed for 2022 or 2023, or if you hold property through a trust or partnership, we strongly urge you to contact BOMCAS Canada immediately for professional assessment and timely filing.

3. Penalties for Late UHT Filing (2024 and Prior Years)

The penalties for non-compliance are severe and apply even if no tax is due. They are assessed on a per-property, per-owner basis.

The minimum penalties were retroactively reduced for 2022 and subsequent years:

The Compounding Penalty Trap

The total penalty is calculated as the greater of the minimum amount OR a calculated amount based on the UHT payable:$$\text{Calculated Penalty} = 5\% \times \text{UHT Payable} + (3\% \times \text{UHT Payable} \times \text{Number of complete months late})$$

Critical Danger: If the UHT return is not filed by December 31 of the year following the calendar year (e.g., the 2024 return is not filed by December 31, 2025), a taxpayer forfeits the ability to claim certain tax exemptions. Consequently, the penalty calculation will be based on the full 1% UHT, potentially leading to maximum penalties far exceeding the stated minimums.

4. Immediate Action and BOMCAS Canada’s Expertise

The elimination of the UHT from 2025 offers future relief, but the compliance window for 2024 (and overdue prior years) is closing.

If you or your entity owned residential property in Canada on December 31, 2024, contact BOMCAS Canada today. Our team specializes in complex tax compliance, including the nuanced requirements of the UHT. We can assess your filing obligations, ensure accurate return submission, and manage late filings to mitigate penalties where possible.

Contact BOMCAS Canada Now

Don’t risk thousands in penalties for a tax that is about to be eliminated. Secure your compliance for 2024 and gain peace of mind.