The Underused Housing Tax came into force on January 1st, 2022. It is therefore in 2023 that the tax obligations resulting from this measure will be applied. This tax targets non-residents as well as non-Canadians who own real estate in Canada that is vacant or underused.
The tax also targets corporations owning residential buildings, whether the shareholder is Canadian or not. However, you may be exempt from this measure if you fall within the definition of excluded owner. Excluded owners include, but are not limited to, Canadian citizens, permanent residents, Canadian corporations whose shares are listed on a stock exchange in Canada, and registered charities.
Affected owners
If you are an affected owner, it is mandatory that you file a tax return no later than April 30th of each year regardless of wether the buildings are vacant or underutilized.
If your building or buildings are vacant or underutilized, you will have to pay the 1% tax unless you benefit from an exemption. Once again, if you benefit from an exemption, you still have the obligation to file a return in which you claim this exemption.
Exemptions are grouped into four categories:
- your situation as an owner (becomes an owner during a year);
- the availability of the building (damage, new construction, etc.);
- the location and use of the building (remote area – see here for the tool);
- the person who occupies the building (non-arm’s length person).
Calculation of the tax
The 1% tax is calculated based on the value of the residential building and your percentage of ownership (e.g. 50% if you are an owner). An alternative method can also be used, but it requires a licensed real estate appraiser.
Penalty
Penalties of up to $10,000 may be assessed if you file your Underused Housing Tax return late.
Do not hesitate to make an appointment with our tax experts to validate if you benefit from an exemption or if you need assistance to prepare the calculation of the tax.