Underused Housing Tax Act
There's a new federal tax to discourage foreigners from buying and holding empty homes throughout Canada.
If you are not a permanent resident or a Canadian citizen, you may have to submit an annual declaration under the new Underused Housing Tax Act (UHTA).
Starting calendar year 2022, such owners have to make a declaration to the CRA by April 30, 2023. If the home was empty, you may be subject to a 1% tax of the fair market value of the property. The payment also has to be made by April 30th.
Can't hide behind corporations
The UHTA also targets foreigners who hold properties through a Canadian corporation. As a result, clients who hold properties through a private corporation also have to make an annual declaration. If the corporation is 100% owned by a permanent resident or a Canadian citizen, the corporation will be exempt from tax. However, you still have make a declaration to the CRA by April 30th.
Per the Legislative Summary of Bill C-8:
Owner's excluded from the declaration obligation
Her Majesty in right of Canada or a province, or an agent of Her Majesty in right of Canada or a province;
an individual who is a citizen or permanent resident, except to the extent that the individual is an owner of the residential property in their capacity as a trustee of a trust (other than a personal representative in respect of a deceased individual) or as a partner of a partnership;
a corporation incorporated under the laws of Canada or a province and the shares of which are listed on a Canadian stock exchange;
a person who is an owner of the residential property in their capacity as a trustee of a mutual fund trust, a real estate investment trust or a specified investment flow-through trust;
a registered charity;
a cooperative housing corporation, hospital authority, municipality, public college, school authority, university or para-municipal organization;
an Indigenous governing body or a corporation owned by one; or
a prescribed person.
Owner's who have to declare but are exempt from the tax
Qualifying occupancy exemption: Where a property is occupied in periods of at least one month that total at least 180 days of the year by any individual who is a qualifying occupant. A qualifying occupant is an individual who either:
deals at arm's length with the owner or their spouse or common-law partner and who is given continuous occupancy of the dwelling unit under a written agreement;
does not deal at arm's length with the owner or their spouse or common-law partner and who is given continuous occupancy of the dwelling unit under a written agreement for consideration that is not below the fair rent for the residential property;
is the owner or the owner's spouse or common-law partner, who is in Canada for the purpose of pursuing authorized work under a Canadian work permit and who occupies the dwelling unit in relation to that purpose;
is a spouse, common-law partner, parent or child of the owner and who is a citizen or permanent resident; or
is a prescribed individual
Specified Canadian corporation exemption: Where the owner is a corporation incorporated under the laws of Canada or a province and is not at least 10% owned (by share value or voting rights) by foreign entities and does not have 10% or more of its directors who are neither Canadian residents nor citizens, where there is no share capital, or is otherwise a prescribed corporation.
Property held by a partner of specified Canadian partnership: Where all owners/members of the partnership are excluded owners, a specified Canadian corporation, or is otherwise a prescribed partnership.
Property held by a trustee of a specified Canadian trust: Where an owner's interest in a residential property is that of a trustee of a specified Canadian trust, wherein every person with a beneficial interest in that trust is an excluded owner or a specified Canadian corporation, or is otherwise a prescribed trust.
Property not suitable for year-round use: Where the property is uninhabitable or inaccessible for a portion of the year.
Property uninhabitable due to a disaster or hazardous conditions: If, due to a disaster or hazardous conditions, the property is uninhabitable for at least 60 consecutive days in the calendar year.
Property undergoing major renovations: If, due to a renovation, the residence is uninhabitable for at least 120 consecutive days in the calendar year. This exemption could be claimed by an owner in respect of a property for a calendar year only once every 10 years.
New ownership: An owner's interest in a residential property would be exempt for the calendar year in which the owner first acquires an interest in the property, so long as they were not an owner of the residential property in the prior nine calendar years.
A personal or other legal representative of a deceased individual: Where an owner of residential property dies, the owner and their legal representative (e.g., an estate trustee) are exempt for the calendar year in which the death occurred and for the following calendar year.
The death of another owner: Where an owner with at least a 25% interest in the property dies, any other owner's interest in the property would be exempt for the calendar year in which the death occurred and for the subsequent calendar year.
A newly constructed property: An owner's interest in a residential property is exempt for a calendar year, if the property was not substantially completed before 1 April of the applicable calendar year.
A new property held by a developer as inventory for sale: Where an owner is a developer, their interest in a residential property is exempt for the first calendar year the property first becomes capable of being occupied.
The property is primary place of residence: Where the owner, the owner's spouse or common-law partner, or their child declares the residence to be their primary residence, or where such child uses the property for the purposes of authorized study and the occupancy relates to that purpose.
Other prescribed persons, locations or conditions.