Uncovering the Underused Housing Tax in Canada | All You Need to Know

Are you a non-resident or non-Canadian homeowner whose property has been sitting vacant? If so, it may be time to reconsider your tax liability. Effective last January 1, 2022, the Canadian government instituted an annual 1% tax on the ownership of vacant or underused housing in Canada. This is part of their effort to increase rental stock availability and stimulate economic growth for local suppliers and service providers. The objective here is that this targeted exposure should create pressure for owners to put these properties back into use – either by renting them out or selling them off entirely – and hopefully bring more affordable housing opportunities onto the market. In this blog post, we will discuss the eligibility criteria for this relatively new tax, who qualifies as a “non-resident” owner and how it can affect your bottom line when investing in Canadian real estate. 

Who must file a return and pay the tax 

Those subject to the 1% tax on vacant or underused housing in Canada must be non-residents and not citizens of Canada. Additionally, all homeowners who live or own land in Canada are required to file a return and pay the tax. Filing is also necessary for homes that are rented out less than six months per year.  

• According to Canada.ca  “If your ownership of a residential property does not qualify for an exemption from the Underused Housing Tax for a calendar year, you must calculate what you owe for the calendar year. The tax rate of the Underused Housing Tax is 1%. To calculate what you owe, multiply the value of the residential property by the 1% tax rate. Then multiply that result by your ownership percentage of the property.  ” 
• Determine the value of the property  “There are two ways to determine the value of a residential property. The general rule is to use its taxable value. If you want to use its fair market value instead, you must file an election with the Agency.”

 

How Much Will You Have to Pay? 

Although the amount each property owner has to pay may vary from province to province and depend on individual situations, one aspect that is certain is that everyone who falls under this new law has to pay. Depending on the property’s assessed value, an owner could potentially owe hundreds or thousands of dollars at the end of each year – so it’s important for those affected by the tax to understand how much they will be expected to pay. Researching online and consulting a qualified financial advisor can help you prepare for your annual payment and avoid any unnecessary overruns in your budget. 

The long-term benefits for those affected by this new law  

This will actually bring about a wide range of benefits for those in the short-term and especially in the long-term. Primarily, this tax will incentivize property owners to take active roles in renting and managing their properties, creating more chances for Canadians to rent and own more affordable housing. It also seeks to increase transparency by deterring speculation from those seeking financial gains from Canadian real estate that often disrupts local markets. Additionally, the law intends to create a fairer playing field in terms of taxation regulations between non-resident foreign owners and Canadian citizens, as the former could previously take advantage of laxer rules meant to promote foreign investment. Ultimately, by taking action against speculators who distort the market as well as providing higher opportunities and better regulations for ownership and rental availability, this new law creates a long-term win that leads to a healthier economy. 

If you are unfamiliar with the housing tax in Canada and think it could be beneficial to your financial situation, it’s important to know how to file and utilize it correctly. For more information regarding the Underused Housing Tax, head on over to Canada.ca , links to forms and checklists are also provided. With any tax obligation, it is important to ensure that you are filing accurately and on time in order to avoid any disputes or penalties from the government. It’s best to seek professional advice if you are unsure of the filing process.