Navigating Canada’s Underused Housing Tax
TAGS: Canada Revenue Agency (CRA) Empty Homes Tax Speculation and Vacancy Tax Taxes Underused Housing Tax
On June 9, 2022, the federal government enacted the Underused Housing Tax (UHT), effective for the 2022 tax year. The first filing for 2022 is due on April 30, 2023. While REALTORS® do not assume direct responsibility, they can help inform their clients of their tax filing obligations.
What is the Underused Housing Tax?
The UHT is a one per cent annual levy on the value of a “vacant or underused” property belonging to “non-resident, non-Canadian owners,” although it may apply to some Canadian owners as well.
Unless residential property owners are “excluded owners,” they are required to complete an annual return. Excluded owners include, but are not limited to:
- Most Canadian citizens or permanent residents (except for affected persons listed below);
- Any person that owns a residential property as a trustee of a mutual fund trust, a real estate investment trust, or specified investment flow-through trust;
- A registered charity;
- A cooperative housing corporation; or
- An Indigenous governing body or corporation owned by an Indigenous governing body.
It is important to underscore that even owners who may fall under one of the exemptions are required to complete a filing. The following affected owners are required to file a return:
- Non-Canadian citizens or permanent residents,
- Canadians who own a residential property as a trustee of a trust,
- Any person that owns a residential property as a partner of a partnership,
- A corporation incorporated outside Canada,
- A corporation whose shares are not listed on a Canadian stock exchange, and
- A Canadian corporation without share capital.
A failure to file an UHT return can result in penalties beginning at $5,000 for individuals and $10,000 for corporations.
Concerns with the Underused Housing Tax
Both BCREA and the Canadian Real Estate Association (CREA) have expressed significant concerns regarding the UHT.
British Columbians are already familiar with these sorts of taxes, with many already subject to the Speculation and Vacancy Tax, as well as the Vancouver Empty Homes Tax. BCREA Economics research has found that these taxes do not have a meaningful impact on real estate markets, housing availability and affordability.
As anticipated by both BCREA and CREA, another concern is that the United States federal government is threatening reciprocal taxes on Canadian owners of American homes. On February 15, 2023, Congressman Brian Higgins said that because there is no US exemption, the US should institute its own tax, targeting Canadians.
BCREA will continue to advocate that the UHT’s effects should be re-evaluated and compared to other federal initiatives, such as the Foreign Buyers Ban. As economic conditions change, the effectiveness of this policy should be assessed, along with potential unintended consequences.
To learn more about the UHT, please consult the following resources:
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