When Bill C-8, the Underused Housing Tax Act, received Royal Assent on June 9, 2022, the federal government created a new tax on underused (i.e. vacant) residential properties owned by non-resident non-Canadians. This new tax came into effect January 1, 2022.
On December 31st of each year, every non-excluded owner1 of residential property2, must file a return (s.7(1)) and pay tax equal to 1% of their ownership share of the value of the property. They can elect a fair market value or default to the prescribed value, if any, or the property’s most recent sale price. (s.6(3)).
The tax for a calendar year must be paid to the Receiver General on or before April 30 of the following year (s.6(6)).
The underused housing tax is not payable if the property:
- is the primary residence occupied by the owner, their spouse or common-law partner (per Income Tax Act) or a child of them if occupying for the purposes of study (s.6(8));
- has more than 180 days qualifying occupancy period (not vacant)(s.6(9)), defined as an occupation for at least one month by an arm’s length individual with a written lease, or a non-arm’s length individual with a written lease not paying below the fair rent (s.6(1);
- is occupied by the owner, their spouse or common-law partner in Canada pursuing authorized work under a Canadian work permit (s.6(1));
- is occupied by the owner, their spouse or common-law partner that is a citizen or permanent resident or a prescribe individual.
Any non-payment attracts daily compound interest at the prescribed rate.
The penalty for not filing a required return is $5,000 for an individual or $10,000 if not an individual, plus 5% of the tax otherwise payable for the calendar year and 3% of the tax otherwise payable multiplied by the number of complete months from the date the return was required to be filed.
Lawyers acting for non-resident non-Canadian purchasers may want to forewarn their clients of the tax and filing obligations. FYI, this tax applies in addition to the 20% foreign buyer’s tax in British Columbia.
1An excluded owner (see s.2 Definitions) includes a government, a citizen or permanent resident of Canada, a publicly listed corporation incorporated federally or provincially, a trustee, a s.248(1) registered charity, a coop, hospital, municipality, college or university, an Indigenous governing body or a prescribed person, which would appear that the tax applies to non-residents.
2Residential property is defined as a property with no more than three dwelling units, including a semi-detached, rowhouse unit, residential condominium unit or other similar premises intended to be separately owned.
This article is by Ray Leclair, VP, Public Affairs at LAWPRO.