Underused housing taxes are designed to encourage owners to use their vacant or underutilized properties better. The Underused Housing Tax is a 1% tax on vacant or underused housing in Canada that became effective January 1, 2022. The tax often applies to non-resident, non-Canadian owners, but it can also affect Canadian owners in some cases.
Here is some of the most important information about the Underused Housing Tax.
Tax filers and taxpayers
The Underused Housing Tax Act does not apply to excluded owners of residential properties in Canada. The following are examples of excluded owners:
- Individuals were other than Canadian citizens or permanent residents who own residential properties as trustees of mutual funds, real estate investment trusts, or specified investment flow-through trusts (SIFTs) for Canadian income tax purposes.
- Corporations listed on Canadian stock exchanges that are taxed under Canadian law
- A charity that is tax-exempt under Canadian law
- Cooperative housing corporation subject to GST/HST in Canada
- The Indigenous government or an Indigenous corporation wholly owned by the Indigenous government.
The following are examples of affected owners who are not excluded owners:
- Individuals who are not Canadian citizens or permanent residents
- Trustees (other than personal representatives of deceased individuals) who own residential properties as Canadian citizens or permanent residents
- Individuals who own residential properties as partners in partnerships, including Canadian citizens and permanent residents
- Corporations incorporated outside of Canada
- For tax purposes, a Canadian corporation whose shares are not listed on a Canadian stock exchange
- Corporations without share capital in Canada
Late filing penalties
When an Underused Housing Tax return is not filed on time, there are significant penalties. Individuals are subject to a $5,000 penalty, and corporations are subject to a $10,000 penalty.
You may be exempt from the Underused Housing Tax if you own a residential property that meets the following criteria:
- Your ownership kind
- Residential property availability
- Residential property location and use
- A residential property’s occupant
Regardless of whether you qualify for an exemption, if you own a residential property in Canada on December 31, you still need to file an Underused Housing Tax return for the property for the calendar year.
Calculate what you owe.
Your Underused Housing Tax owing for a calendar year must be calculated if you own a residential property exempted from the tax. You owe the Underused Housing Tax based on your ownership percentage and the tax rate of 1%. To calculate how much you owe, multiply the home’s value by 1%.
Calculate the property’s value – Residential properties are valued in one of two ways. The general rule is to use their taxable value, but you can use their fair market value instead.
Underused Housing Tax owing must be calculated using a fair market value for a residential property if the owner elects to use the fair market value. To assist with administrating the Underused Housing Tax Act, an accredited, professional real estate appraiser working at arm’s length from the owner must prepare the appraisal report.
Filing the return
For the calendar year, you must file an Underused Housing Tax return if you own residential property in Canada on December 31. You must still file your return if your ownership qualifies for an exemption and you do not owe taxes. You can either file your return electronically or you can mail it. Records must also be kept to prove your obligations and liabilities. Your exemption claim can be rejected if you are exempt from paying taxes but do not maintain proper records.
The Underused Housing Tax in Canada is a tax that encourages property owners to utilize their vacant or underutilized properties to the fullest extent possible. Non-resident, non-Canadian and Canadian owners are subject to the tax. A late filing penalty applies, but exemptions can be granted based on specific criteria.