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Tax Insights: Department of Finance launches consultation on the proposed underused housing tax

August 30, 2021

Issue 2021-20

In brief

The Department of Finance (Finance) has released a backgrounder1 that describes the proposed framework for a new annual 1% federal underused housing tax (UHT) that would apply on the value of non-resident, non-Canadian owned Canadian residential property considered to be vacant or underused. The UHT is proposed to be effective January 1, 2022, as previously announced in the 2021 federal budget. Under the framework, certain residential property owners in Canada would be required to file an annual declaration for each Canadian residential property they own, even if they can claim an exemption from the UHT. Accordingly, if the UHT is implemented as proposed, many owners of Canadian residential properties could be subject to mandatory annual reporting obligations and properties that have direct or indirect foreign ownership may potentially be subject to this new tax.

Finance has launched a consultation on the proposed UHT and is seeking feedback on its design. The deadline for stakeholders to submit comments is September 17, 2021.

In detail

Overview of the UHT framework

Under the proposed framework, the 1% UHT would apply each year to the legal owner of a “residential property” in Canada as of December 31 of the calendar year, if the owner is:

  • required to file an annual declaration for the property for that calendar year, and
  • not eligible to claim an exemption in respect of their interest in the property for that calendar year

The UHT would be calculated by multiplying the “specified value” of the property by 1%. An owner would be liable for the UHT in proportion to their legal interest in the property (if a property has a single legal owner, that owner’s interest would be 100%; joint tenants would be treated as equal owners and tenants‑in‑common would have an interest as specified on any instrument evidencing ownership, if so specified, or as equal owners otherwise). The UHT would be required to be remitted to the Canada Revenue Agency (CRA) by April 30 of the following calendar year.

A “residential property” would generally include detached homes, duplexes and triplexes, semi‑detached homes, row‑house units, residential condominium units and any other similar premises that are used as a place of residence for individuals.

The “specified value” of a property would be the greater of:

  • the assessed value of the property that applies for the calendar year for local property taxation purposes
  • the property’s most recent sale price

Alternatively, an owner would be permitted to elect to use the fair market value of the property as determined at any time from January 1 of the calendar year to April 30 of the following calendar year based on an appraisal obtained by the owner.

Annual mandatory declaration by residential property owners

Every owner of a residential property, other than an “excluded owner,” would be required to file an annual declaration with the CRA for each residential property they own. The deadline to file the declaration would be April 30 of the following calendar year (i.e. an owner’s declaration relating to a property for the 2022 calendar year must be filed by April 30, 2023). Failure to file a mandatory declaration would result in significant penalties and would allow the CRA to assess the tax based on the property’s fair market value at the time of assessment. A declaration filed later than December 31 of the following year would result in the inability to claim certain exemptions.

“Excluded owners”

“Excluded owners” of residential property would not be required to file a declaration and therefore are not subject to the UHT. Excluded owners include:

  • an individual that is a Canadian citizen or a permanent resident of Canada, except for an individual that holds an interest in property:
    • as a partner of a partnership, or
    • as a trustee of a trust, but not including a personal representative of a deceased individual or their estate
  • a corporation incorporated in Canada and the shares of which are listed on a Canadian stock exchange
  • a registered charity or a cooperative housing corporation
  • the Canadian, provincial or territorial governments, or their agents, a municipality, an Indigenous governing body and certain other public service bodies
  • a prescribed person or a person of a prescribed class

Content of declaration

An owner of a residential property would be required to report, in their declaration for the property, information about the owner and the property, such as:

  • owner’s legal name, type of owner and residential property type
  • owner’s percentage interest in the property, and if it is less than 100%, the form of ownership and names of other owners with a 10% or greater interest in the property
  • specified value of the property and how it was determined
  • exemptions claimed for the property

UHT exemptions

The framework outlines potential exemptions from the UHT and notes that anti-avoidance rules to prevent any inappropriate use or abuse of the exemption provisions may be proposed. Exemptions would be available for:

  • qualifying occupancy (see below)
  • specified Canadian corporations (see below)
  • property held by partners of a specified Canadian partnership or by trustees of a specified Canadian trust (see below)
  • property not suitable for year-round use, uninhabitable due to a disaster or hazardous conditions or undergoing major renovations (with some limitations)
  • year of acquisition of an interest in a property
  • personal or other legal representatives of deceased individuals, and in certain cases, upon the death of another owner of the property
  • newly constructed property and new property held by a developer as inventory for sale (for the first year in which it became capable of being occupied)

Exemption for “qualifying occupancy”

An owner that satisfies a minimum “qualifying occupancy” test for the property for a particular calendar year would be exempt from the UHT for that calendar year. The qualifying occupancy test requires a property to be occupied, in periods of at least one month that total at least 6 months of the year, by any individual that is a “qualifying occupant” in respect of the owner of the property. A “qualifying occupant” would generally include:

  • an individual who occupies the residential property under a written agreement with the owner (and “at fair rent,” in the case of a non-arm’s length individual tenant), and
  • only in the case of an owner that is an individual, the owner or the owner’s family members if certain criteria are met

Exemption for specified Canadian corporations

An owner that is a “specified Canadian corporation” would be exempt from the UHT for the calendar year. A “specified Canadian corporation” would generally include any corporation that is incorporated in Canada and that is not one of the following as of December 31 of the calendar year:

  • a corporation in which one or more “foreign entities” (i.e. any individual that is neither a Canadian citizen or a permanent resident of Canada or a corporation that is incorporated outside Canada) has ownership or control, directly or indirectly, of shares of the corporation representing 10% or more of the corporation’s voting rights or the value of its equity
  • a corporation without share capital, in which the chairperson or other presiding officer, or 10% or more of the directors or other similar officers, are individuals that are neither Canadian citizens nor permanent residents of Canada, or
  • a prescribed corporation or a corporation of a prescribed class

Exemption for property held by partners of a “specified Canadian partnership” or by trustees of a “specified Canadian trust”

An owner that holds the interest in the property as a partner of a “specified Canadian partnership” or as a trustee of a “specified Canadian trust” would be exempt from UHT for the calendar year. A partnership or trust would meet these definitions in respect of a calendar year if, on December 31 of that year:

  • in the case of a partnership, every member of the partnership was an excluded owner, a specified Canadian corporation or a prescribed person or person of a prescribed class
  • in the case of a trust, every person with a beneficial interest in the property under the trust, was an excluded owner, a specified Canadian corporation or a prescribed person or person of a prescribed class

Note that it is not clear whether it is intended that a specified Canadian corporation acting as a nominee owner would be treated as a “trustee” for purposes of the UHT.

Other noteworthy items

Certificates of compliance

Beginning in 2023, an application by a non-resident of Canada for a certificate of compliance under section 116 of the Income Tax Act relating to the disposition of Canadian residential property will prompt a UHT compliance review by the CRA. The CRA will not issue a certificate of compliance to an applicant until it is satisfied that the applicant has complied with any applicable obligations under the UHT. Consideration will also be given to amending the Income Tax Act to:

  • increase the required withholding tax under section 116 for residential properties, and
  • allow amounts paid under this section to offset amounts assessed under the UHT

It is not clear how these section 116 requirements might apply in respect of the disposition of a beneficial interest in a property in a transaction where the legal ownership does not change.

Application of the UHT in smaller, resort and tourism communities

The government is also seeking feedback on whether special rules should be established for residential properties located in smaller, resort and tourism communities, and if so, what those rules should be.

The takeaway

The government is proposing this new federal tax on underused housing to help address the housing crisis in Canada and make home ownership more affordable for Canadian citizens and permanent residents. However, if the UHT is implemented as proposed, many residential property owners in Canada, including nominee companies, trustees and certain partners, could be subject to mandatory annual reporting obligations, even if they are exempt from the UHT. Owners of residential properties, and especially those with properties that could be considered to be vacant or underused, should be aware of the proposed framework and how it may impact them. Stakeholders should submit their feedback to Finance no later than September 17, 2021; Finance is expected to release draft legislative proposals on the UHT regime later this year.


1. Department of Finance backgrounder for “Consultation on the Underused Housing Tax” (August 10, 2021). 


Contact us

Ken Griffin

Ken Griffin

Partner, PwC Canada

Tel: +1 416 815 5211

Fred Cassano

Fred Cassano

Partner, National Real Estate Tax Leader, PwC Canada

Tel: +1 905 418 3469

Angela Ross

Angela Ross

Principal, High Net Worth, PwC Canada

Tel: +1 416 218 1541

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