On January 1, 2022, the Underused Housing Tax took effect. Commonly referred to as the “Empty Homes Tax,” this 1% applies to vacant or underused housing throughout Canada. The Government of Canada states that most of the time, this tax only applies to non-resident, non-Canadian property owners. However, that is not always the case. Canadians can be subjected to the tax in some situations as well. Speaking with a tax lawyer in Canada will often help Canadians determine whether they might be subject to the empty homes tax. Learn more by contacting Jeremy Scott Law at (902) 403-7201.
March 27, 2023 the Canada Revenue Agency has announced that penalties and interest under the UHTA for the 2022 calendar year will be waived for any late-filed underused housing tax (UHT) return and for any late-paid UHT payable, provided the return is filed or the UHT is paid by October 31, 2023!
A Deeper Drive into the Canada Empty Homes Tax
The underused housing tax is a flat 1% tax, but it is not levied automatically. Instead, those who must pay the tax are required to also file an annual return to report their tax obligation. Others might also have to file a return but might not need to pay any tax. To determine whether filing a return is necessary, every property owner must decide whether they are an “affected owner” or “excluded owner.”
The definition of an “owner” for the underused housing tax is broad. It includes more than whoever is listed on the deed for the property. For instance, those with a life estate in a property will be considered an owner, and anyone with a life lease is an owner. Even some individuals or entities that have long-term leases are affected. A long-term lease involves continued possession of the land for at least 20 years or any lease that has any option to purchase the property.
Who Is an Excluded Owner?
An excluded owner is an individual or entity that does not have to file an empty homes tax return or pay the tax. An excluded owner generally includes any of the following:
- The owner holds the residential property as a trustee of certain types of trusts
- An individual who is a citizen or permanent resident of Canada, unless the property is owned as a partner in a partnership
- A corporation incorporated under the laws of Canada or listed on a Canadian stock exchange
- A registered charity
- Cooperative housing corporation
- A public college or other school authority or university
- Municipality or para-municipal organization
- Indigenous governing body
Because the Canada Unused Housing Tax does not apply to Canadian citizens or permanent residents in most situations, many taxpayers may not need to worry too much about this tax. Instead, it is targeted non-residents and corporations that own residential property but are not incorporated within Canada, although there may be unintended owners caught in this new scheme.
Who Is an Affected Owner?
An affected owner will have to file a return and pay the underused housing tax. The definition of an affected owner is broad. Essentially, any owner who is not an excluded owner is an affected owner. Affected owners have to file annual returns and may need to pay the 1% tax if no property exemption applies to their property.
Even if a property owner is considered an affected owner, they still may not need to pay the empty house tax if their property qualifies for an exemption. First, keep in mind that this tax only affects residential properties. For instance, if the property is classified as commercial or agricultural, the tax is not triggered.
Further, if the property is residential for tenants, it might not be considered residential for the property owner. For example, the following might not be considered residential properties to which this tax applies.
- Mobile homes
- High-rise apartment buildings
- Buildings used for more than 50% office or retail
- Hotels, motels, inns, and bed and breakfasts
- Commercial condominium units
- Motorhomes and camping trailers
Other exemptions might apply as well. For instance, certain vacation properties located in specific parts of Canada are not subject to the tax. If the property is not accessible for a portion of the year, it might be exempt as well. For specific information about your property, and to get answers to all of your tax questions, you may want to speak with the experienced Canada tax lawyers at Jeremy Scott Law.
Local Empty Homes Tax Schemes
In addition to the general Canada Underused Property Tax, some local areas have also implemented their own Empty Homes Tax rules and obligations. For example, Vancouver and Toronto are now imposing taxes on vacant homes within those cities.
Nova Scotia had introduced similar tax measures, but those have since been scaled back. At this time, it is unclear whether Nova Scotia will impose local empty homes taxes or what they will look like.
Toronto’s Vacant Home Tax
The City of Toronto has stated that it is implementing the Vacant Homes Tax as a way to increase the supply of housing. The city wants to discourage owners from leaving residential homes unoccupied. This tax is 1% of the declared value of the house, as assessed by the Current Value Assessment (CVA).
Each resident is required to make a declaration of the occupancy status of their residential property for 2022 by February 3, 2023. The City of Toronto has created an online declaration portal so residents can make this declaration using their tax assessment roll number and customer number from their property tax statement or bill. If a resident has a vacant home for a period of at least six months, they will be required to pay the Vacant Home Tax. Those who must pay the tax will receive a notice in March or April, and payment is due by May 1.
Vancouver’s Empty Homes Tax
Like Toronto, Vancouver also has an Empty Homes Tax that requires residents to declare where they reside each year. Those that own empty homes in Vancouver are subject to a 3% tax rate of the property’s assessed value. According to the City of Vancouver, that rate will increase to 5% in 2023.
Get Help with Your Empty Homes Tax Throughout Canada
The various empty homes taxes that apply throughout Canada can be confusing. However, having access to a knowledgeable Canadian tax lawyer can be extremely helpful. Learn more about how Jeremy Scott Law can help you by calling (902) 403-7201.