Underused Housing Tax: Does it Apply to You?

Does Canada’s New ‘Underused Housing Tax’ Apply to You?

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.

This tax primarily affects non-resident, non-Canadian owners, but in some situations may apply to Canadian owners. There are three categories of owners as stipulated by the Act: excluded owners, affected owners, and exempt owners. Importantly, the reporting and tax obligations stipulated under the Act vary by owner category.

To find out if the Underused Housing Tax Act applies to you, keep reading:

The Act applies to residential property in Canada. To understand if the Act is applicable to you, you must understand the definition of a residential property as defined by the Act.[1]

Once you’ve determined whether your property falls within the definition of residential property as set forth in the Act, you must consider which owner classification category you fit into and the obligations that flow from the same.

Excluded Owners:

Under the Act, excluded owners of residential property in Canada have no obligations or liabilities. Excluded owners include Canadian citizens, permanent residents, and other limited exceptions.

Affected Owners:

If you are an affected owner, you must file an Underused Housing Tax Return for each residential property that you own on December 31 of each year. Unless your ownership qualifies for an exemption, you must also pay the Underused Housing Tax.

 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.

Exempt Owners:

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.

Your ownership of a residential property may be exempt from the Underused Housing Tax for a calendar year depending on the following:

• 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.

For more information on exempt owners, click here. 

To explore the application of the Act in greater detail, please find attached a few illustrative examples of how the Act operates in practice based on your ownership classification.

Filing Your Return

Affected owners who fail to file an Underused Housing Tax Return before the deadline are subject to a minimum penalty of $ 5,000 CAD.

If the above information leads you to believe that the Underused Housing Tax applies to you and your residential property, but you have not filed your Underused Housing Tax return by the April 20, 2023, deadline, don’t panic. The Canada Revenue Agency (CRA) has waived penalties and interest before November 1, 2023, to provide more time for affected owners to comply.

To file your return electronically, visit this page. It provides owners with a list of requirements to complete their submissions.

If you require assistance with the filing or have questions about the application of the Underused Housing Tax Act, you should contact your legal advisor.