Does Canada’s New ‘Underused Housing Tax’ Apply to You? Part 2
On January 1, 2022, the federal government implemented the Underused Housing Tax Act (the “Act”). This legislation requires certain residential property owners to file an annual return to report their ownership and pay a 1% tax on the property’s value.
However, if you are an affected owner but satisfy one of the exemptions listed in the Act, you can avoid the 1% property tax, but you must still file the yearly Underused Housing Tax return for each exempt residential property you own.
Unsure if you are an affected owner? Click here for Part 1.
Exempt Owners
Your 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, and the occupant of the residential property.
A) Exemptions based on the type of owner
Your ownership of a residential property may be exempt for a calendar year if you are:
B) Exemptions based on the availability of the residential property
Your ownership of a residential property may be exempt for a calendar year if:
- the property is newly constructed;
C) Exemption based on the location and use of the residential property
Your ownership of a residential property may be exempt for a calendar year if the property is:
- 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.
D) Exemptions based on the occupant of the residential property
- construction of the property is not substantially completed before April of the calendar year, or if the property is constructed in the first quarter of the year and it is offered for sale to the public during the year;
- the property is not suitable for year-round use as a place of residence or where it is seasonably inaccessible because public access is not maintained year-round;
- the property is uninhabitable for a certain number of days because of a disaster or hazardous conditions, or renovations.
Your ownership of a residential property may be exempt for a calendar year in the following situations:
- 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.
- A qualifying occupancy period is at least one month in a calendar year during which one of the following qualifying occupants has continuous occupancy of the residential property:
- an individual with a written contract who deals at arm’s length with you and your spouse or common-law partner;
- an individual with a written contract who does not deal at arm’s length with you or your spouse or common-law partner, and who pays at least fair rent for the property (this provision captures your common lease for fair rent);
- you, or your spouse or common-law partner, who has a Canadian work permit;
- your spouse or common-law partner, parent or child who is a Canadian citizen or permanent resident.
If you, or your property, qualify for one of the above exemptions, you do not have to pay the 1% property tax, but you must still file the yearly Underused Housing Tax return for each residential property you own.
To file your return electronically, visit this page. It provides owners with a list of requirements to complete their submissions.
To see a few examples of how the Underused Housing Tax Act applies, click here.
If you require assistance with the filing or have questions about the application of the Act, you should contact your legal advisor.
Written by Meghan Praught
This article does not constitute legal advice; always consult legal counsel.
The content of this article is intended to provide a general guide to the subject matter and is not legal advice. Specialist advice should be sought regarding your specific circumstance.