Could you get dinged with the Underused Housing Tax?

The Underused Housing Tax is a 1% tax imposed on the owners of vacant or underused residential property in Canada who are not Canadian citizens or permanent residents. That’s a fancy way of saying anyone who is holding vacant residential property but not building anything on it, or owns a property but lets it sit empty, or not used often. This tax has been in effect since January 1, 2022, so if you have a property that could meet the description above, you’re going to want to read on.

How do I know if this tax is for me?

There are two categories that owners can fall into: “affected owners” and “excluded owners.” Affected owners are those who are required to file an Underused Housing Tax return, and excluded owners are those that don’t.

There are lots of scenarios, considerations, and exemptions for this tax – like most things, it’s not entirely straightforward. Here are the highlights:

• If the owner of the property is a corporation, they should file. If 90% or more of the shares of the corporation are owned by Canadian citizens or permanent residents, they’ll qualify for the exemption.
• If a partnership owns the property or reports the rental income, they should file. If the partnership consists of Canadian citizens or permanent residents, they’ll qualify for the exemption.
• If an individual owns the property and is not a Canadian citizen or permanent resident, they should file.
• If an individual owns the property and is a Canadian citizen or permanent resident, they don’t need to file.

We’ve made this handy flow chart to explain further.

Tell me more about the exemptions.

When it comes to exemptions to filing the Underused Housing Tax, there are many things to keep in mind.

Excluded owners don’t have to file a return, but affected owners still need to do so in order to prove that they are exempt from paying the tax. Here are a few scenarios where that would be the case:

• If at least a unit of this property is part of the primary residence of the owner or their immediate family (spouse, common-law partner or child).
• If at least a unit of this property was rented to someone.
• If at least a unit of this property was occupied by the owner or their immediate family while on a work permit in Canada.
• If at least a unit of this property was occupied by the owner or their immediate family who is a Canadian citizen or permanent resident.
• If the property can’t be lived in year-round, or is seasonally inaccessible.

• If a natural disaster or hazardous condition (beyond the owners reasonable control) made the property uninhabitable for some time, or construction made it uninhabitable for some time.

There are other exemptions surrounding the death of the owner, and a Tax Expert is a great resource for all the details.

What should I consider if I own multiple properties?

If you own multiple properties, there are few things to keep in mind:

• A separate return must be filed for each residential property.
• If spouses or common-law partners own multiple residential properties together and one of them is not a Canadian citizen or permanent resident, they may not qualify for the exemptions for either their primary residence or rental property.

There is lots of “fine print” when it comes to determining if you need to file the Underused Housing Tax, and an H&R Block Tax Expert is a great resource to help you navigate filing. Find an office near you to book an appointment today.