Vacant Property in Canada and the Underused Housing Tax

As of January 1, 2022, Canada’s Underused Housing Tax came into effect. It’s a 1% annual tax on vacant or underused properties. This tax primarily targets non-Canadians who are not residing in Canada but own houses that the CRA labels as “vacant” or “underutilized.” 

This is a move to address the housing shortage in Canada. However, there are scenarios where Canadian citizens might also be affected by this tax. Here’s a brief rundown of the tax’s main points. Click the following link for more in-depth information on the Underused Housing Tax in Canada.

Criteria for an “Underutilized” Property

The criteria outlined in the Underused Housing Tax Act states that the tax is applicable to:

• Single-family homes, duplexes, or triplexes with up to three units.
• Semi-detached houses, townhouses, or condos.
• Other specific properties designed for residential use. Under the Act, residential units are those with separate living, kitchen, and bathroom facilities. A property is termed underutilized if it’s not occupied for at least 180 days in a year.

Who is Affected by this Tax?

The tax is applicable to:

• Non-Canadians and non-permanent residents.
• Canadian citizens or permanent residents owning a property through a trust (except if they’re acting on behalf of a deceased individual).
• Canadians or permanent residents who are part of a partnership that owns a property.
• Foreign corporations.
• Canadian corporations not publicly traded on Canadian stock exchanges.
• Canadian corporations without share capital.

These groups are called “affected owners.”

Exclusions from the Tax

There are several exemption categories based on ownership type, property accessibility, location, and occupancy.

Ownership-Based Exemptions

Exemptions are granted in certain conditions, including:

• Property owned by certain Canadian entities.
• Newly acquired properties within the year.
• Properties owned by the deceased or their representatives.

Criteria for Exempt Properties

Properties might be exempt from the UHT if:

• They are newly built.
• Not suitable for all-year occupation, like being accessible only seasonally.
• Rendered uninhabitable due to unforeseen events like disasters.
• Undergoing renovations.

Geographic Exemptions

Holiday homes, like cottages in eligible Canadian regions used by the owner or their partner for at least 28 days annually, may be exempt.

Exemptions Based on Occupancy

A primary residence for the owner or their immediate family attending an educational institution for a minimum of 180 days annually can be exempt. Additionally, certain rental situations or residency based on work permits may also lead to exemptions.

Calculating the Underused Tax

Affected owners must calculate the UHT by multiplying their property’s value with the 1% tax rate, then by the percentage of the property they own.

Determining Property Value

Owners can use either the assessed tax value or the market value. If choosing the market value, an election must be filed with the CRA, necessitating an appraisal from a recognized home appraiser strictly for the purposes of paying the tax, i.e., if you recently had your home appraised for insurance purposes, that appraisal is not acceptable for UHT payment.

Tax Return Submission For the UHT

Every “affected owner” holding a property in Canada as of December 31 needs to file a tax return for the Underused Housing Tax, irrespective of any exemptions or owed amounts. These can be submitted online or via post.

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