The Underused Housing Tax is a 1% tax levied on non-Canadian citizens or permanent residents who own vacant or underutilized residential property in Canada. In simpler terms, this tax applies to individuals who possess residential property but do not construct anything on it, leave it vacant, or rarely use it. Implemented since January 1, 2023, if you own such a property, it is essential for you to continue reading for further details.
Determining if the Underused Housing Tax Applies to You
The Underused Housing Tax has two categories for property owners: “affected owners” and “excluded owners.” Affected owners are required to file an Underused Housing Tax return, while excluded owners are not. To help you understand further, here are the key points:
- Corporations: If the property is owned by a corporation, filing is necessary. However, if 90% or more of the corporation’s shares are owned by Canadian citizens or permanent residents, they qualify for an exemption.
- Partnerships: If a partnership owns the property or reports the rental income, filing is required. However, if the partnership consists of Canadian citizens or permanent residents, they qualify for an exemption.
- Individuals: If the property is owned by an individual who is not a Canadian citizen or permanent resident, filing is required. On the other hand, if the property is owned by an individual who is a Canadian citizen or permanent resident, filing is not necessary.
To provide further clarity, we have created a helpful flow chart for your reference.
Exemptions from Filing
When it comes to exemptions from filing the Underused Housing Tax, several factors should be considered. While excluded owners do not need to file a return, affected owners must file to demonstrate their exemption from paying the tax. Here are some scenarios where exemption applies:
- Property as Primary Residence: If at least one unit of the property is part of the owner’s primary residence or the primary residence of their immediate family (spouse, common-law partner, or child), filing is exempt.
- Property Rental: If at least one unit of the property is rented to someone, filing is exempt.
- Work Permit Occupancy: If at least one unit of the property is occupied by the owner or their immediate family while on a work permit in Canada, filing is exempt.
- Canadian Citizen or Permanent Resident Occupancy: If at least one unit of the property is occupied by the owner or their immediate family who are Canadian citizens or permanent residents, filing is exempt.
- Seasonal or Inaccessible Property: If the property cannot be lived in year-round or is seasonally inaccessible, filing is exempt.
- Natural Disaster or Construction: If a natural disaster or construction (beyond the owner’s reasonable control) made the property uninhabitable for a period of time, filing is exempt.
There are additional exemptions related to the owner’s death, and consulting a Tax Expert is recommended for comprehensive details on all exemptions.
Factors to Consider for Multiple Property Ownership
If you own multiple properties, there are important considerations to keep in mind:
- Separate Returns for Each Property: It is necessary to file a separate return for each residential property you own. This means that if you own multiple properties, you will need to file individual returns for each of them.
- Spousal or Common-Law Ownership: In the case where spouses or common-law partners jointly own multiple residential properties, an important factor to consider is if one of them is not a Canadian citizen or permanent resident. In such a scenario, it’s crucial to note that they may not qualify for exemptions related to either their primary residence or rental properties. This means that the exemptions applicable to Canadian citizens or permanent residents may not extend to the non-citizen or non-permanent resident partner.
When dealing with multiple properties, it is recommended to consult a Tax Expert for personalized advice based on your specific situation.