The federal government has proposed a potential new tew tax on underused or vacant houses in Canada with Bill C-8, the Underused Housing Tax Act (the “Act”). If passed, the Act would impose an annual one per cent tax on Canadian residential properties owned by non-citizens or non-permanent residents of Canada unless specifically exempted. It further sets out rules to establish owners’ liability for the tax as well as applicable reporting and filing requirements. Finally, the Act also includes modern administration and enforcement provisions aligned with those found in other taxation statutes to promote compliance with its provisions.
Given various definitions under the Act as currently drafted, many Canadian entities will have compliance obligations.
What is a Residential Property under the Act?
The Act defines “residential property” as a property that is situated in Canada, and that is:
(a) a detached house or similar building, containing not more than three dwelling units, together with that proportion of the appurtenances to the building and the land subjacent or immediately contiguous to the building that is reasonably necessary for its use and enjoyment as a place of residence for individuals
(b) a part of a building that is a semi-detached house, rowhouse unit, residential condominium unit or other similar premises that is, or is intended to be, a separate parcel or other division of real or immovable property owned or intended to be owned, apart from any other unit in the building together with that proportion of any common areas and other appurtenances to the building and the land subjacent or immediately contiguous to the building that is attributable to the house, unit or premises and that is reasonably necessary for its use and enjoyment as a place of residence for individuals, or
(c) a prescribed property
Who is an Owner under the Act?
Owner means a person who is identified as an owner of residential property under the land registration system, or other similar systems applicable to the location of the residential property or one who could reasonably be considered to be an owner based on such a system, including a person that:
(a) is a life tenant under a life estate in respect of the residential property,
(b) is a life leaseholder in respect of the residential property,
(c) has, under a long-term lease, continuous possession of the land on which the residential property is situated, or
(d) is a prescribed person,
An owner does not include:
(e) a person that gives continuous possession of all the land on which the residential property is situated to persons referred to in paragraph (b) or (c), or
(f) a prescribed person
An excluded owner of a residential property for a calendar year means a person (other than a prescribed person) that is on December 31 of the calendar year:
(a) Her Majesty in right of Canada or a province or an agent of Her Majesty in right of Canada or a province
(b) 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
(c) a corporation incorporated under the laws of Canada or a province whose shares are listed on a stock exchange in Canada for which a designation under section 262 of the Income Tax Act is in effect
(d) a person that is an owner of the residential property in their capacity as a trustee of
(i) a mutual fund trust as defined in subsection 248(1) of the Income Tax Act,
(ii) a real estate investment trust as defined in subsection 122.1(1) of that Act, or
(iii) a SIFT trust as defined in subsection 122.1(1) of that Act
(e) a registered charity as defined in subsection 248(1) of the Income Tax Act
(f) a cooperative housing corporation, a hospital authority, a municipality, a public college, a school authority, or a university, as those terms are defined in subsection 123(1) of the Excise Tax Act or a para-municipal organization as defined in section 1 of Part VI of Schedule V to that Act
(g) an Indigenous governing body as defined in section 2 of the Department of Indigenous Services Act or a corporation wholly owned by such a body, or
(h) a prescribed person
What is the Tax Rate Under the Act?
The tax rate under the Act payable for a calendar year is equal to 1% of the “taxable value” of the property. The taxable value is primarily determined based on the assessed property tax value for the property, determined by the applicable province, or the most recent sale price (whichever is greater). Under the legislation, owners will also be able to elect to use fair market value, determined under prescribed rules. The tax is paid based on an owner’s proportionate share of the residential property.
Returns Required to be Filed
As of December 31st of the relevant calendar year, registered owners of residential real estate in Canada, other than an “excluded owner”, will be required to file an annual return for such calendar year by April 30th. Failing to file a return as required results in a minimum penalty of $5,000 if the person is an individual or $10,000 if not. Note there are increased fines for non-individuals.
Status of the Act
The Act has gone through second reading and is not yet in effect. We will continue to monitor this legislation and advise of any changing compliance obligations for Canadian entities.
Oakville Lawyers Helping Clients with Commercial Real Estate
At Campbells LLP, we routinely assist residential property owners with various rights and obligations here in Canada. Should you have any questions about how the Act may affect you or should you have any general commercial real estate or residential real estate questions, our lawyers are here to advise you. To speak with a lawyer about your real estate needs, contact us online or at 905-828-2247 to schedule a consultation.