In the 2021 budget, the government of Canada decided to implement a tax, effective from January 1st, 2022, an annual tax on unused or vacant housing. This blog aims to give a brief overview of the Underused Housing Tax (UHT), also known as the Vacancy Tax, and discuss why you may need consultancy.
What is the Underused Housing Tax?
The Underused Housing Tax is an annual tax on vacant or unused properties. The Government passed Bill C-8 Underused Housing Tax which may apply to all residential properties, whether they are occupied or not and whether they are rented out.
Overview of Underused Housing Tax Framework
The Underused Housing Tax Act applies to all residential properties and will be assessed as 1% of the property’s assessed value.
Excluded Owners
Owners who meet the following criteria by December 31st of the year may be exempt from paying the UHT tax:
- The person who is a Canadian citizen or permanent resident
- A publicly traded Canadian corporation
- A registered charity
- Any person with title to property that has a capacity of trustees of various widely held trusts
- Any cooperative housing corporation
- Municipal organizations, public buildings, offices, government bodies
Exemptions
In addition to excluded owners, there following exemptions may also be available:
- Primary residential property
- Qualifying occupancy
- Limited seasonal access
- Disaster or hazardous condition
- Renovation or construction
- Year of acquisition
- Year of the death of the owner
- Specified corporation corporation
- Partner of a specified Canadian partnership
- Trustee of specified Canadian trust
- Prescribed area and condition
Non-Compliance
Failure to file the return carries a minimum penalty of $5,000 for individuals and $10,000 for everyone else. In addition, the person may also lose access to exemptions (listed above).
Mandatory Declaration by Residential Property Owners
Under the Underused Housing Tax Act, residential property owners must declare their properties in a prescribed form and submit this to the CRA. Owners must also keep records of rental income or other forms of occupancy for each property they own.
Every owner of a residential property, other than an “excluded owner,” must submit an annual declaration with the Canada Revenue Agency (CRA) for every residential property they own. For some owners, pre-registration with the CRA might be necessary to file their declaration. The deadline for submitting a declaration for a particular property and calendar year is April 30 of the following year. For example, an owner’s declaration for the 2022 calendar year should be filed no later than April 30, 2023. There could be significant ramifications for failing to submit a declaration in time; penalties, interests, and other consequences are all possible outcomes.
Why do you need consultancy on the UHT?
Given the complexity of the law, owners must understand the rules and regulations to remain compliant. Consulting with a professional can help you better understand how the Underused Housing Tax Act may affect your situation and how to best prepare for it.
A consultant can advise on the various tax strategies available and help you identify potential areas of non-compliance that could result in additional costs or penalties. They will also be able to help you understand the implications of the act, such as if there is a need to make any changes to the ownership structure for tax purposes.
Finally, a consultant can guide filing and reporting requirements to avoid penalties and interest charges. The implementation of the Underused Housing Tax Act requires careful consideration and consultation with advisors who are familiar with the tax. Professionals can help answer questions such as:
- What is the impact of the Underused Housing Tax Act on residents and non-residents?
- How should I structure my property ownership to mitigate the effects of the Underused Housing Tax Act?
- What exemptions or credits are available to help reduce my liability for the Underused Housing Tax Act Canada?
- How will the Underused Housing Tax Act be enforced, and what legal recourse do I have if I am incorrectly charged?
Professional advisors can also assist in ensuring that all relevant information is filed correctly with the CRA and ensure compliance with the Underused Housing Tax.
In conclusion, consulting with a professional is essential when it comes to understanding the Underused Housing Tax Act. A consultant can help you know the rules, identify potential areas of non-compliance and manage your cash flow to ensure that you remain compliant with the law. If you are a property owner affected by this new tax, you must consult a professional for advice on how to best prepare for and comply with the Underused Housing Tax Act.
SRJ Chartered Accountants Professional Corporation
SRJ Chartered Accountants Professional Corporation is a cloud CPA firm based out of Toronto that specializes in helping individuals and corporations with real estate tax planning and reducing taxes. If you want to learn more about how we can help you reduce your tax bill, contact us at info@srjca.com or 647-725-2537 . You can even visit the Underused Housing Tax Act CRA website for more information.
FAQs
Do I need to declare my rental income on underused housing?
Yes. If you are the owner of an underused residential property, you need to declare the rental income and any other forms of occupancy in your annual tax return. You may face penalties and interest charges if you do not declare your rental income.
What are the consequences of failing to comply with the Underused Housing Tax Act?
Failure to comply with the Underused Housing Tax Canada Act can result in substantial fines, penalties, and other sanctions. Other legal ramifications could be criminal prosecution or administrative orders from provincial/territorial governments. It is essential to consult with a professional to ensure that you are compliant with the Underused Housing Tax Act.
What types of property are included in the Canada Underused Housing Tax?
The Underused Housing Tax applies to all residential properties, including single-family homes, multi-family dwellings, and condominiums. You must declare all rental income for all these properties in compliance with the housing tax Canada.
How does buying a house affect taxes in Canada?
Owning a house can have tax implications in Canada. Depending on the property type, you may be required to pay federal and provincial capital gains taxes when selling the property. Additionally, you must declare any rental income generated from the property and pay the Underused Housing Tax where applicable.
Is foreign property taxable in Canada?
Yes, the foreign property is taxable in Canada. As a resident of Canada, you are taxable on your worldwide income. This would include rental income and capital gains from foreign properties that you may own.
Can I claim a deduction for repairs or maintenance on my rental property?
Yes, you can claim deductions for specific repairs and maintenance costs related to your rental property, such as plumbing, electrical, painting, and landscaping expenses. You must have incurred these expenses to improve or maintain the property to be eligible for the deduction.
Conclusion
The Underused Housing Tax is a new tax that applies to owners of residential properties in Canada. Although the Underused Housing Tax may seem complicated, with the help of professional consultation, you can ensure that your property ownership structures remain compliant and minimize your liability for the tax.By engaging in sound consultancy practices, you can ensure that your taxation obligations are fulfilled and help contribute to a more equitable housing market. If you require consultation on the Underused Housing Tax Canada or have any queries about filing for exemptions, credits, or other considerations, contact a real estate accountant at SRJ Chartered Accountants Professional Corporation today.