You may have heard about the Underused Housing Tax, an annual 1% tax on owners of vacant or underused residential property in Canada. While the tax mostly applies to non-residents of Canada, there are situations where it could apply to Canadian owners as well. How do you know if you may be affected? Georgia Swan, Tax and Estate Planner, TD Wealth, joins Kim Parlee to answer that question.
*On Oct. 31, the Government of Canada announced that owners affected by the Underused Housing Tax will have until April 30, 2024 to file their returns for the 2022 calendar year without being charged penalties or interest.
There's been a lot of chatter lately about the underused housing tax, an annual 1% tax on the ownership of vacant or underused housing in Canada. Now, while the tax mostly applies to non-residents of Canada who own residential property here, there are situations where it applies to Canadian owners as well. So how do you know if you're one of those Canadian owners? Georgia Swan is a tax and estate planner at TD Wealth. She joins me here to explain all the hard stuff. That's when we bring you in. It's like, I don't understand. Georgia will explain this to me. So let's just start with the beginning. What is this tax?
So as you said, it's a tax on underused housing, and it is 1%. It was implemented on January 1, 2022. And what constitutes an underused house actually depends sometimes on where it is, but what we're looking at is that the value of that house is taxed, and there's two ways of determining that value. One is the tax value. The other one is the fair market value, but you have to be careful, if you're going to use that one, because you can only receive it from an accredited real estate valuator. And you have to be careful, because this tax is federal legislation, and it's not to be confused with some of the vacant housing tax acts that have been implemented in certain regions of Canada, like Toronto and Ottawa and Vancouver. This applies across the country.
Which is what I asked Georgia, for those who are wondering. At first I was like is this the Toronto tax that I had to fill the form out for? It is not that. OK. So in terms of determining the value of the tax, or what has to be paid-- you talked a bit about that-- who? Who is considered an affected owner?
OK. So affected owners start with anybody who is a non-Canadian citizen, so not a Canadian citizen or permanent resident. But people might be surprised that, sometimes, you might be still a Canadian citizen or permanent resident and still get caught, because it depends on how you own the property. So if you are a trustee of a trust that owns residential property, if a Canadian corporation owns residential property, if you're a partner in a partnership that owns residential property, even though you're a Canadian citizen or resident, you are an affected owner. So then, you have to consider about whether you might have to pay the tax. Certainly, if you're an affected owner, you're going to have to file that tax return.
Got it. OK, and so I think, for people who are listening to us, it's like if you directly own something, you're probably fine. If there's an interesting way that the ownership is different than being a direct owner, you should really take a second look.
OK. So let's just do this. If I'm a Canadian citizen, and I own a cottage that me and my family mostly use in the summer, am I excluded, or am I an affected owner?
You're an affected owner, but that doesn't-- or I should say, you may be an affected owner. On the face of it, with that very simple thing, you're probably excluded, but you should still look into it. Because sometimes, as I said, all of this depends on where the property is. Usually, cottages are outside these areas where this tax applies, but you should still get proper advice.
I want to let people know, too, Georgia is sitting across me, and there's a whole list of-- there's many, many, many ways in which this is. So it really is about you just need to understand your specific situation, and go talk to somebody, really, at the end of the day.
OK. Earlier this year, I know the CRA came out, and they extended the deadline to file the underused housing tax return to October 31. When you are filing, what are you required to include on that return, and what are some of the penalties, if you don't do it?
Yeah. So there's a lot of information on that return, and I think that's why we got this extension, because we're getting used to this new thing. So obviously, where the property is, so the address, but you also need information like the property identification number, which basically identifies the property according to the land registry office it's in. You need the assessment roll number. You need what type of property. It is it a duplex? Is it a single-family residence? You need what your ownership in it is. Do you own it as joint tenants or tenants in common, and what the percentage of ownership is. So there's a lot of information. There's parts about if you own multiple properties. The bottom line is the penalties for not filing, if you're an individual, are basically a minimum of $5,000, if you're a corporation a minimum of $10,000. So basically, it can be significant, if you don't do this, and you're supposed to.
And if you are required to file, the actual underused housing return, does that mean you must also pay the tax? And that's not necessarily, I'm assuming.
And that's the case.
In many circumstances, you have to file a return, but you may not have to pay any tax.
So that's the important thing, that you still will have to file the return, and therefore, if you don't file it, you might be subject to penalties. But there may not be tax payable, if you fall under one of the exclusions, where you don't have to actually pay the tax. So remember, the return is a must, but you may not have to pay any tax.
It's like your tax return. Right?
In the best case scenario, you might be getting money back or something, but you have to file no matter what, and that's the same. I'm assuming you should speak to somebody then, if you feel like this applies to you, and you need to figure out what to do.
Oh, definitely. I'm even having trouble wrapping my mind around all of this and trying to think through scenarios. So please, get proper advice. Talk to your accountant, talk to your tax lawyer, and make sure that, if you own residential property, that you are not actually caught by this.
All right, Georgia, always a pleasure. Thanks so much.