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According to Canada Budget 2021, the federal government plans to Canada tax residential real estate at one percent annually on the following basis:
Any property owned by a non-resident, non-Canadian, and
An underutilized or vacant space.
This blog focuses solely on national Underused Housing Tax and UTH exemptions. The exemptions include qualification exemptions, Property availability exemptions, and Ownership exemptions.
The Underused Housing Tax is a policy or tax levied on property owners who have underutilized or under-occupied housing units. This tax aims to encourage the release of such units into the market. The UTH Act is making more housing available and hopefully reducing housing shortages and increasing affordability.
A non-resident, non-Canadian, wholly or partly owns underutilized housing in Canada, whether directly or indirectly. Residents in Canada who own residential properties on December 31 of the relevant year are subject to UHT obligations for calendar years (beginning with 2022).
UHT taxes are due in addition to some filers' annual reporting requirements. Calculate the tax by multiplying the value of the residential property by 1 percent. In addition, filing the annual return must be paid to the CRA by April 30.
UHT obligations are exempt for the following owners (as of December 31 of the calendar year):
Owners may be eligible for an exemption from the tax if they meet the below criteria. Otherwise, UHT will apply.
Following situations may exempt an owner of a residential property for a calendar year.
In the case of multiple residential properties owned by the owners and their spouses, exemptions may not be available. They apply for an election with the CRA listing only one home as their primary residence. Therefore, you must file the election with your UHT return the following year. With this, co-owners must also vote jointly when the property is owned jointly.
When a primary residence is designated, owners or spouses cannot qualify as occupants of any other properties that they own.
There may be an exemption if the residential property is unavailable for the following reasons.
A property that is not suitable as a year-round residence or cannot be accessed during part of the year.
During the calendar year, the property must be uninhabitable for at least 60 days. Therefore, the property was not exempt from the previous year.
Residential properties that have been uninhabitable for 120 consecutive days. Because renovations completed without unreasonable delay qualify for the exemption, and the property was not exempt last year.
The owner acquired a residential property for the first time during the year. During the nine years before, the property was not owned by the owner.
Owners who are exempt from UHT include:
If the residential property is not in a densely populated area, the recreational property may be exempt from UHT:
An area of Canada prescribed by law
During the calendar year, it must be used by the owner, the owner's spouse, or both.
The impact of the Underused Housing Tax can be positive.
Positive impacts can include:
By incentivizing property owners to release underutilized or under-occupied units into the market, the tax can help address housing shortages and make more housing available, especially in high-demand areas.
The increased housing supply can put downward pressure on housing prices, making housing more affordable for renters and buyers.
The increased demand for housing can create jobs in the construction and real estate industries and stimulate economic activity in other sectors.
Depending on the specifics of the tax, it may result in unintended consequences for renters and buyers, such as reduced housing quality, increased rental costs, or reduced access to affordable housing.
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The Underused Housing Tax applies to property owners who keep their homes empty for a specified period of time, typically six months or more. The tax is typically levied on the owner, not the property, and is based on the assessed value of the property.
The Underused Housing Tax is typically calculated based on a set rate that is applied to the assessed value of the property. The rate may vary depending on the jurisdiction and the length of time that the property has been left empty. In some cases, the tax may be waived or reduced for certain types of properties, such as:
Temporarily vacant due to circumstances beyond the owner's control.
An exemption is available to this subset of affected owners, but they still need to file a calendar-year exemption claim.
Yes, the Underused Housing Tax can be appealed by the property owner. The appeals process typically involves submitting a request for reconsideration or appealing the tax to a higher authority, such as a tax appeals board or court.
Nicholas Branson, CPA
Jason Dinesen
Imtiaz Munshi, CPA .webp)
