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Selling Sunset: Real Estate Taxes Property Owners in Canada Must Know About

Underused Housing Tax 
The federal Underused Housing Tax Act became effective January 1, 2022, and the first tax returns for those who need to file are due in 2023. It imposes a 1% annual tax on the value of residential real estate in Canada owned by any non-resident, non-Canadian that is considered vacant or underused. Even if you are a Canadian citizen or resident, these laws may still impact you.

1. Do You Need to File?

Every owner of residential property in Canada who is not an “excluded owner” under the Underused Housing Act must file an annual Underused Housing Tax (“UHT”) Return by April 30 each year, but for 2023, the application of penalties or interest will be waived for UHT Returns and payments provided the Return is filed and the UHT is paid by October 31, 2023. The filing due date does not always coincide with the tax filer’s year-end (for example, if the owner is a corporation or a trust).

An “excluded owner” is (on December 31 of a calendar year) one of the following:

  • an individual Canadian citizen or permanent resident of Canada;
  • a publicly traded Canadian corporation;
  • a person with title to the property in their capacity as trustee of certain widely held trusts [for example, a mutual fund or a Real Estate Investment Trust (REIT)];
  • a registered charity;
  • a cooperative housing corporation; or
  • a municipal organization or other public institutions and government bodies.

An “excluded owner” is not subject to UHT and is not required to file the annual UHT Return.

2. If You Need to File, Do You Need to Pay Any Tax?

All other owners, referred to as “affected owners”, are required to file an annual return, even if only to claim an exemption from the tax. This captures private corporations, partnerships, and trusts which own residential property in Canada, as well as individuals who are neither a Canadian citizen nor a permanent resident of Canada.

This will specifically impact trusts holding Canadian real property (with the exception of estates for a specified period), private corporations on title to property as a bare trustee/nominee corporation, and any person(s) on title as a bare trustee. The legal owner will have a filing obligation, but a tax exemption will generally apply if the beneficial owner(s) of the residential property is a Canadian citizen or permanent resident. There is also an exemption for properties with limited seasonal access or use, for example, cottage properties. These exemptions are nuanced and have strict tests.

Significant penalties apply if the UHT Return is not filed on time. There will be a minimum late filing penalty of $5,000 where the owner is an individual or $10,000 where the owner is not an individual (for example, a corporation).

3. If You Need to Pay Tax, How Much?

All owners who do not meet an available exemption must pay UHT. The UHT is 1% of the “taxable value” of the property. The “taxable value” of a property for a calendar year is the greater of:

  • the assessed value of the property for local property taxation purposes for that year; and
  • the property’s most recent sale price on or before December 31 of that year.

Alternatively, an owner can elect to use the fair market value of the property (based on certain criteria).

Vacant Home Tax

The UHT is not to be confused with the new Vacant Home Tax (“VHT”), which applies at the municipal level. VHT was recently enacted in Toronto and Ottawa, and other municipalities are considering introducing similar taxes, including Hamilton (proposed to be effective January 1, 2023, with the first filing due in 2024), Peel, Halton, York, Windsor and Durham.

VHT impacts all residential property owners in Toronto and Ottawa, who are now required to declare the occupancy status of their property (or properties), even if the property is occupied. In Toronto, the deadline to file the VHT declaration has passed (it was due February 28, 2023).

In Toronto, a tax of 1% of the current value assessment of the property will apply to residences that are unoccupied or unrented to tenants, which certain exceptions. Eligible exemptions include, for example, the death of the registered owner, repairs or renovations, and where the principal resident is in a hospital, long-term, or supportive care facility.

A fine will apply for late declarations, interest will apply to any overdue amounts, and as well fines will apply if someone is found guilty of certain offences under the relevant by-law.

Prohibition on the Purchase of Residential Property by Non-Canadians

The new Prohibition on the Purchase of Residential Property by Non-Canadians Act (Canada) prohibits the purchase of Canadian residential property by non-Canadians, directly or indirectly, for a period of two years starting from January 1, 2023.

Non-Resident Speculation Tax

Although not a new tax, the Non-Resident Speculation Tax (“NRST”), which was introduced in 2017, was increased to 25% effective October 25, 2022. The NRST applies on the purchase or acquisition of an interest in residential property located anywhere in Ontario by individuals who are foreign nationals (individuals who are not Canadian citizens or permanent residents of Canada), foreign corporations or taxable trustees. The NRST has increased from 15% to 25% and its reach has expanded from the Greater Golden Horseshoe Region of Ontario to the entire province.

Property owners – with any interest, direct or indirect – of residential properties in Canada should be aware of these changes and talk to their tax advisors to see how such changes may impact them.

— Marly Peikes

The comments offered in this article are meant to be general in nature, are limited to the law of Ontario, Canada, and are not intended to provide legal or tax advice on any individual situation. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your personal circumstances.