Reverse Mortgage and the Underused Housing Tax in Ontario

"I heard there is a new federal tax on vacant or underused homes — does my reverse mortgage property count?" This is a fair and increasingly common question. The federal Underused Housing Tax (UHT), which came into effect on January 1, 2022, has created confusion among Canadian homeowners — particularly those with reverse mortgages, second properties, or estate situations involving multiple properties.

The short answer for most Ontario reverse mortgage holders: your primary residence is exempt from the UHT. But the details matter, and failing to file the required annual UHT return (even if you owe zero tax) can result in significant penalties. This guide explains the UHT, its exemptions, and what Ontario reverse mortgage homeowners need to know.

This article is for educational purposes only and does not constitute financial advice.

What Is the Underused Housing Tax?

The Underused Housing Tax (UHT) is a federal annual one percent tax on the value of residential properties in Canada that are vacant or underused. It was introduced as part of a federal housing affordability strategy targeting foreign-owned vacant properties.

The UHT is administered by the Canada Revenue Agency (CRA) and requires certain property owners to file a UHT return each year — even if no tax is owing.

UHT Feature	Detail
Effective date	January 1, 2022 (returns first due May 1, 2023)
Tax rate	1% of the property's assessed or fair market value
Target	Vacant or underused residential properties
Who must file	"Affected owners" (see below)
Filing deadline	April 30 each year
Administered by	Canada Revenue Agency (CRA)
Penalties for non-filing	Minimum $5,000 for individuals; $10,000 for corporations

According to the Canada Revenue Agency, the UHT is designed to apply to foreign or non-resident owners of vacant or underused Canadian housing. Most Canadian citizens and permanent residents are "excluded owners" and do not need to file a UHT return — but exceptions exist.

Who Is an "Affected Owner" and Who Is an "Excluded Owner"?

This distinction is critical. The UHT filing and payment obligation applies only to affected owners — not all property owners.

Excluded Owners (generally do NOT need to file):

• Canadian citizens who own the property in their personal name
• Permanent residents of Canada who own in their personal name
• Canadian public corporations
• Most registered charities

Affected Owners (DO need to file, even if exempt from paying):

• Non-Canadian citizens and non-permanent residents owning Canadian property
• Canadian citizens or permanent residents who own through a private corporation, partnership, or trust
• Foreign corporations
• Non-resident trusts

Ownership Type	File Required?	Tax Likely Owing?
Canadian citizen, personal name	✗ No	N/A
Permanent resident, personal name	✗ No	N/A
Canadian citizen, through private corporation	✓ Yes	Likely no (if exempt)
Canadian citizen, through family trust	✓ Yes	Likely no (if exempt)
Non-resident, foreign individual	✓ Yes	Possibly yes
Property in estate of deceased Canadian	✓ Yes — see below	Likely no (if exempt)

How the UHT Affects Most Ontario Reverse Mortgage Holders

The typical Ontario reverse mortgage scenario: A Canadian citizen aged 55+ owns their home in their personal name. The home is their primary residence. They live there full-time.

UHT impact: None. As an excluded owner (Canadian citizen, personal name, primary residence), you do not need to file a UHT return and owe no UHT.

The reverse mortgage itself has no effect on UHT analysis — the tax is based on who owns the property and whether it is occupied, not on what financing is in place.

When the UHT Becomes Relevant for Reverse Mortgage Households

While most individual reverse mortgage holders are unaffected, the following situations can create UHT considerations:

1. Property Held in a Corporation or Trust

Some Ontarians hold their home inside a holding company, family trust, or estate trust for estate planning purposes. If you hold your property through any of these structures and are thinking about a reverse mortgage, two issues arise:

• UHT: The corporation or trust is an affected owner and must file a UHT return annually (though available exemptions likely apply).
• Reverse mortgage eligibility: Most Canadian reverse mortgage lenders require the property to be held in personal names, not inside a corporation or trust. The property may need to be transferred to personal title before the reverse mortgage can be processed — which has its own legal and tax implications.

If your property is held in a trust or company, speak with a tax advisor and Rick Sekhon before proceeding. For details on title considerations, see our guide to joint tenancy and title issues with reverse mortgages in Ontario.

2. The Property as Part of an Estate

When a homeowner with a reverse mortgage passes away, the property typically becomes part of their estate. The estate executor has obligations regarding both the reverse mortgage (which becomes due and payable) and potentially the UHT (if the estate is considered an "affected owner" during the period of estate administration).

The CRA has provided guidance that estates of deceased Canadians can claim an exemption from UHT during estate administration — but the executor must still file the UHT return to claim the exemption. Penalties for non-filing apply even to exempt owners.

For more on executor obligations with a reverse mortgage, see our guide to executor responsibilities when a reverse mortgage is part of the estate.

3. Non-Resident or Foreign Co-Owners

If a co-owner of the property is a non-resident of Canada — a common situation in families where one spouse has spent extended time abroad — the non-resident co-owner may be an affected owner subject to UHT filing requirements. This does not necessarily mean tax is owed (primary residence exemptions may apply), but the filing obligation exists.

4. Vacation Properties and Second Homes

A reverse mortgage must be placed on the primary residence only. If you also own a vacation property, seasonal cottage, or secondary home, that property is separate from your reverse mortgage — but it may be subject to UHT depending on how it is owned and used.

Secondary Property Scenario	UHT Filing Required?	Possible Tax?
Seasonal cottage, Canadian citizen personal name	✗ No	No
Seasonal cottage, held in a family trust	✓ Yes	Possibly no (if exempt)
Rental property, Canadian citizen personal name	✓ No — excluded owner	No
Rental property, held in corporation	✓ Yes	Possibly no (if exempt)
Vacation property leased to short-term rentals	✓ No — excluded owner	No

Note: The rules above reflect the general framework as of 2026. The CRA has updated UHT guidance multiple times since 2022. Consult a tax advisor for your specific situation.

Consult a qualified tax advisor for guidance specific to your situation.

Available UHT Exemptions (for Affected Owners Who Must File)

If you are an affected owner who must file, several exemptions may reduce the tax to zero:

Primary residence exemption: The property is the primary place of residence for the owner, their spouse/common-law partner, or a qualifying family member.

Qualifying occupancy exemption: The property is occupied by an arm's-length tenant under a written lease for at least one month during the calendar year.

Qualifying availability exemption: The property was seasonally available for use during the calendar year (relevant for seasonal properties).

Recent acquisition exemption: The property was acquired by the owner in the calendar year.

New construction exemption: The property was uninhabitable or undergoing renovation during the calendar year.

Even if an exemption applies, affected owners must still file the UHT return and claim the exemption — failure to file results in significant minimum penalties regardless of whether any tax is owed.

Interaction with Property Taxes and Other Obligations

The UHT is a federal tax — separate from Ontario's Municipal Property Tax and from the Ontario Vacant Home Tax (Toronto), Vacant Unit Tax (Ottawa), and similar municipal programs. Each operates under different rules.

Reverse mortgage homeowners already have an ongoing obligation to pay property taxes as a condition of the reverse mortgage (failure to pay property taxes can be a trigger for default). This existing obligation aligns with UHT compliance — an occupied, tax-paying property that is the owner's primary residence is both UHT-exempt and compliant with reverse mortgage maintenance obligations.

For more on reverse mortgage obligations, see our guide to property tax and insurance obligations with a reverse mortgage.

Frequently Asked Questions

I am a Canadian citizen and own my home personally. Do I need to file a UHT return?

No. Canadian citizens and permanent residents who own property in their personal name are excluded owners and are not required to file a UHT return, even if they also own a vacation property.

Does a reverse mortgage change my UHT status?

No. The existence of a reverse mortgage on your property does not change who owns it or how it is classified for UHT purposes. UHT is based on ownership and occupancy — not financing.

My parent passed away and left a home with a reverse mortgage. Does the estate need to file a UHT return?

Possibly yes, if the estate is considered an "affected owner." Estates of deceased Canadian citizens are generally in a transitional category. The CRA has clarified that executors should file a UHT return for the year of death (and potentially subsequent years if estate administration continues), claiming the applicable exemption. Consult an estate lawyer and tax advisor immediately.

I own a cottage in Ontario separately from my primary residence. Does the cottage have UHT implications?

If you are a Canadian citizen owning the cottage in your personal name, you are an excluded owner and no UHT filing is required for the cottage. However, if the cottage is held in a family trust or corporation, the trust or company is an affected owner and must file — even if no tax is ultimately owed.

Where can I find official CRA guidance on the UHT?

The Canada Revenue Agency publishes current UHT guidance and forms at canada.ca/underused-housing-tax. Because UHT rules and guidance have evolved significantly since 2022, always consult the most current CRA publication and a qualified tax advisor for your specific circumstances.

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The Underused Housing Tax is a real federal compliance obligation — but for the vast majority of Ontario reverse mortgage holders, it has no direct effect. If you own your home personally as a Canadian citizen and it is your primary residence, you are an excluded owner and your reverse mortgage situation is completely unaffected. If your situation involves a trust, corporation, non-resident co-owner, or estate, professional advice is warranted.

Speak to a licensed mortgage professional. Independent legal advice is required before closing a reverse mortgage in Ontario.

Get your free Ontario Reverse Mortgage Guide →

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This content is for illustrative purposes only. Rates may vary. Call Rick Sekhon for the best rates and more information.