Along comes complicated federal Underused Housing Tax, just as property owners are busy filing returns for the city’s vacant unit tax, says Bob Aaron.
As if property owners in Toronto didn’t have their hands full filing returns for the City’s vacant unit tax, along comes the Federal Underused Housing Tax, which will, no doubt, be a surprise to people who own homes everywhere in Canada, whether or not they are Canadian citizens.
This bombshell from Ottawa comes in the form of an annual one-per-cent tax on the ownership of vacant or underused housing across the country. It took effect on Jan. 1, 2022, and is in addition to Toronto’s one-per-cent tax on vacant units.
The rules are completely different from Toronto’s vacancy tax, and are primarily, but not exclusively, aimed at foreigners.
The new federal tax mostly applies to non-resident and non-Canadian owners, but, in some cases, it also applies to Canadian owners.
To me, the scariest part of this tax is the penalty for failing to file the required nine-page tax return when it is due … even if the owners are exempt from paying tax.
Individual affected owners are subject to a minimum nonfiling penalty of $5,000, and affected corporate owners are subject to a minimum penalty of $10,000.
There is no tax where the unit has been occupied for at least 180 days in the calendar year, but, in calculating occupancy, periods of less than 30 days don’t count.
Different rules apply if an individual owns multiple residential properties.
For those who the law calls excluded owners, there is no obligation to file returns or pay taxes. Excluded owners are: Canadian citizens or permanent residents (unless they fall within the definition of affected owners); anyone who is the trustee of a trust that owns residential property; and registered charities, co-operative housing corporations, and publicly traded corporations.
But if you are not an excluded owner, the law calls you an affected owner. This includes those who are not Canadian citizens or permanent residents, as well as Canadian citizens or permanent residents who own residential property as trustees of a trust or partners of a partnership.
Other affected owners are Canadian corporations without share capital, foreign corporations, and Canadian corporations whose shares are not publicly traded.
And it becomes even more bewildering. Ownership of a residential property may be exempt from tax depending on the type of owner you are, and on the availability, location, use and occupation of the residential property.
All owners affected as of last Dec. 31 still have to file a tax return by April 30 for the previous year, even if the ownership qualifies for an exemption.
More exemptions apply to certain corporations, partnerships and trusts, a new owner, the estate of a deceased owner. The tax does not apply to new construction; seasonal and vacation properties, such as cottages; and renovations.
Properties that are the primary place of residence for the owner, a spouse or a child attending school are also exempt from payment.
More information is available online at www.Canada.ca or Google Underused Housing Tax. The tax return and the rules are so complicated I recommend any potentially affected owner seek professional tax advice before April 30.