Tax Alerts

Underused Housing Tax

As of December 31, 2022, a tax of 1% will apply to the value of any residential property that is considered underused and owned by an affected owner.

If you own the property in a clear and direct ownership structure (ie. it is in your name for your use) and are a Canadian citizen or permanent resident, the filing requirement will likely NOT apply to you.

However, if the property is owned in a more indirect way, you may have a filing requirement but may also qualify for an exemption from the tax. We recommend that you review the below and consult with us to determine whether or not this tax applies to you and, if so, how you can take advantage of any potential exemptions.

How do I file and penalties? It is not known at this time the exact method of filing, but CRA has set a deadline of April 30th. . There are significant penalties if you fail to file an Underused Housing Tax return when it is due. Affected owners who are individuals are subject to a minimum penalty of $5,000. Affected owners that are corporations are subject to a minimum penalty of $10,000.

Below is a list of those REQUIRED/AFFECTED OWNERS required to file (list is not exhaustive)

  • an individual who is not a Canadian citizen or permanent resident

  • an individual who is a Canadian citizen or permanent resident and who owns a residential property as a trustee of a trust (other than as a personal representative of a deceased individual)

  • any person – including an individual who is a Canadian citizen or permanent resident – that owns a residential property as a partner of a partnership

  • a corporation that is incorporated outside Canada

  • a Canadian corporation whose shares are not listed on a Canadian stock exchange designated for Canadian income tax purposes

  • a Canadian corporation without share capital

Below is a list of those EXEMPT from filing

  • an individual who is a Canadian citizen or permanent resident – unless included in the list of affected owners above

  • any person – including an individual who is a Canadian citizen or permanent resident – that owns a residential property as a trustee of a mutual fund trust, real estate investment trust, or specified investment flow-through trust (SIFT) for Canadian income tax purposes

  • a Canadian corporation whose shares are listed on a Canadian stock exchange designated for Canadian income tax purposes

  • a registered charity for Canadian income tax purposes

  • a cooperative housing corporation for Canadian GST/HST purposes

  • an Indigenous governing body or a corporation wholly owned by an Indigenous governing body

  • there are more detailed exemptions for partnerships and corporations owning residential property

Here are some common traps

  1. You may own property, but at least one of the registered owners is NOT a Canadian citizen or PR - possibly a spouse, a partner or a shareholder.

  2. You may own real estate in a corporation - not personally

  3. Real estate may be owned by a bare trustee arrangement, filing would be required

     

If I am required to file, but qualify for an exemption - what are the general exemptions?

  • a vacation property located in an eligible area of Canada and used by you or your spouse or common-law partner for at least 28 days in the calendar year - click here to see list of ‘eligible areas’

  • your immediate family member lives in the property for school at a designated learning institution

  • For at least 180 days in the calendar year there was a “qualifying occupancy” which means a period of at least one month one of the following individuals occupied the property

    • an individual with a written contract who deals at arm’s length with you and your spouse or common-law partner

    • an individual with a written contract who does not deal at arm’s length with you or your spouse or common-law partner, and who pays at least fair rent for the property

    • you, or your spouse or common-law partner, who has a Canadian work permit

    • your spouse or common-law partner, parent, or child who is a Canadian citizen or permanent resident

  • property is inaccessible for a period of the year

  • property is inaccessible for a period of the year

  • a property not owned in last 10 years was acquired or sold

  • death while owning property

    More exemptions apply and the above is only a summary - so please let us know if you are claiming an exemption to ensure you qualify.

What if I own multiple properties?

If between you and your spouse or common-law partner you own multiple residential properties, your ownership may not qualify for the exemptions for either primary place of residence or qualifying occupancy unless you file an election with the CRA to designate only one property for the purposes of the exemption. (Generally you would want to claim the more expensive one).

How would they catch me if I don’t file?

For non-residents / non-Canadians, the sale of a property requires a filing of a section 116 compliance certificate. It is expected CRA will review the history of the property for the filings. In addition, CRA is currently reviewing most real estate transactions in BC especially looking for tax money - so real estate is under the microscope everywhere. In addition, with increased filings to CRA for 'transparency purposes' the information will be there - it is just a question if they can connect the dots.

Underused Housing Tax
About the Author
Michael has private client practice which ranges from professionals and individuals to private enterprises, charities and family businesses.
Phone: 604-688-7800 / 587.401.4900