The Underused Housing Tax is an annual 1% tax on the ownership of vacant or underused housing in Canada. It typically applies to non-resident, non-Canadian owners who own houses in Canada, however, in some cases it could also apply to Canadian owners. It applies to residential properties owned on December 31, 2022.
Excluded Owners
Excluded owners have no obligations or liabilities under the Underused Housing Tax Act.
An excluded owner includes, but is not limited to:
- an individual who is a Canadian citizen or permanent resident – unless included in the list of affected owners below
- any person – including an individual who is a Canadian citizen or permanent resident – that owns a residential property as a trustee of a mutual fund trust, real estate investment trust, or specified investment flow-through trust (SIFT) for Canadian income tax purposes
- a Canadian corporation whose shares are listed on a Canadian stock exchange designated for Canadian income tax purposes
- a registered charity for Canadian income tax purposes
- a cooperative housing corporation for Canadian GST/HST purposes
- an Indigenous governing body or a corporation wholly owned by an Indigenous governing body
If you are not an excluded owner, you are an affected owner and you have obligations under the Underused Housing Tax Act for your residential property in Canada. An affected owner includes, but is not limited to:
- an individual who is not a Canadian citizen or permanent resident
- an individual who is a Canadian citizen or permanent resident and who owns a residential property as a trustee of a trust (other than as a personal representative of a deceased individual)
- any person – including an individual who is a Canadian citizen or permanent resident – that owns a residential property as a partner of a partnership
- a corporation that is incorporated outside Canada
- a Canadian corporation whose shares are not listed on a Canadian stock exchange designated for Canadian income tax purposes
- a Canadian corporation without share capital
Affected owners must file an Underused Housing Tax return for each residential property that they own in Canada on December 31, and pay the Underused Housing Tax, unless the ownership qualifies for an exemption for the calendar year. Even if the ownership qualifies for an exemption, an Underused Housing Tax return is still required to be filed for affected owners.
Clients who own residential property through a trust, a private corporation, or a partnership should know they must file a return under the federal government’s new underused housing tax regime, even if they owe no taxes. Canadian estates are excluded.
Penalties
There are penalties for those who are required and fail to file an Underused Housing Tax return. Affected owners who are individuals are subject to a minimum penalty of $5,000. Affected owners that are corporations are subject to a minimum penalty of $10,000.
Exemptions
Ownership of a residential property may be exempt from the Underused Housing Tax for a calendar year depending on:
- the type of owner you are
- the availability of the residential property
- the location and use of the residential property
- the occupant of the residential property
- Exemptions based on the type of owner
- a specified Canadian corporation
- a partner of a specified Canadian partnership, or a trustee of a specified Canadian trust
- a new owner in the calendar year
- a deceased owner, or a co-owner or personal representative of a deceased owner
- Exemptions based on the availability of the residential property
- newly constructed
- not suitable to be lived in year-round , or seasonally inaccessible
- uninhabitable for a certain number of days because of:
- a disaster of hazardous conditions
- renovations
- Exemptions based on the location and use of the residential property
- a vacation property located in an eligible area of Canada and used by you or your spouse or common-law partner for at least 28 days in the calendar year
- Exemptions based on the occupant of the residential property
- it is the primary place of residence for you or your spouse or common-law partner, or for your child who is attending a designated learning institution
- at least 180 days in the calendar year are included in one or more qualifying occupancy periods for your ownership of the residential property
Calculate what you owe
If ownership of a residential property does not qualify for an exemption for a calendar year, you must calculate what you owe based on the tax rate of 1% multiplied by the value of the residential property. Then multiply that result by your ownership percentage of the property.
When to file the return or an election
The Underused Housing Tax return for a calendar year, including any tax owing, must be filed and paid by April 30 of the following calendar year.
For more information on the Underused Housing Tax, please visit: https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html#2