New Federal Underused Housing Tax

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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.

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An annual tax will be levied on vacant residences in Toronto and Ottawa, payable beginning in 2023. Real estate lawyers should be aware of the details in order to properly advise clients who may own vacant properties in these cities.