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The Underused Housing Tax (the "UHT") is levied at a rate of 1% annually on the value of vacant or underused residential property in Canada. It took effect on January 1, 2022, and generally applies to non-resident, non-Canadians.
Budget 2025 proposes to eliminate the UHT as of 2025, such that "no UHT would be payable and no UHT returns would be required to be filed in respect of the 2025 and subsequent calendar years."1 Specifically, the Notice of Ways and Means Motion2 that accompanied Budget 2025 proposes to add the following sections, among others, to the Underused Housing Tax Act (the "UHT Act"):
Tax not payable
1.1 No tax is payable under subsection 6(3) by a person in respect of a residential property for 2025 and subsequent calendar years.
[...]
Return not required
6.1 Despite sections 7 and 10, a person is not required to file a return for a residential property for 2025 and subsequent calendar years.
Budget 2025 proposes that the UHT Act and the Underused Housing Tax Regulations be repealed entirely effective January 1, 2035.3 However, taxpayers should note that "all UHT requirements continue to apply in respect of the 2022 to 2024 calendar years."4 Budget 2025 makes clear that "penalties and/or interest for failing to file a UHT return as and when required, or for failing to pay UHT when it becomes due, will also continue to apply in respect of the 2022 to 2024 calendar years."5
Under the UHT Act, every person who fails to file a return as and when required is liable to pay a penalty equal to the greater of:6
- $1,000 if the person is an individual or $2,000 if the person is not an individual; and
- 5% of tax payable plus 3% of tax payable for every month a return was not filed as required.
The UHT was first proposed in Budget 2021 as a measure to "support investments in housing affordability". 7 Budget 2025 describes the UHT as "costly to administer" and projects that its elimination will result in a positive revenue impact of $30 million per year. 8 Its elimination is part of an effort to "simplify Canada's tax system and reduce compliance costs for taxpayers and administrative costs for government" in light of "other efforts such as the federal foreign buyer ban and municipal and provincial vacant home taxes".9
Winding down the administration of the UHT, as well as the Digital Services Tax, the Federal Fuel Charge, the Canada Carbon Rebate, and the luxury tax on aircraft and vessels is expected to result in administrative savings that "will be reinvested to improve services, strengthen compliance, and reduce tax debt".10
Footnotes
1. Government of Canada, "Budget 2025: Canada Strong", (November 4, 2025), [Budget 2025., pp 355-356.
2. Budget 2025, p 403 "Notice of Ways and Means Motion[ii] to amend the Underused Housing Tax Act and Related Text".
3. Budget 2025, p 403.
4. Budget 2025, pp 355-356.
5. Ibid.
6. Underused Housing Tax Act, ss. 47(1).
7. Government of Canada, "Budget 2021: A Recovery Plan for Jobs, Growth, and Resilience" (April 19, 2021), p 193.
8. Budget 2025, p 336.
9. Budget 2025, p 220.
10. Budget 2025, p 296.
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
© McMillan LLP 2025
