American Jack Surgent and his family recently returned to the recreational property they’ve owned in Whistler for two decades, only to be met with an unwelcome surprise: despite the fact that his second home is exempt from Canada’s new Underused Housing Tax (UHT), he is still required to file a UHT form by the April 30 deadline—or else be slapped with a minimum $5,000 penalty. A chartered accountant in his native U.S. (“Taxes are kind of my thing,” he said), Surgent was caught off-guard by the new requirements, and he’s positive he’s not the only one.
“There is going to be a ton of people like me that don’t know they have to file this form,” Surgent said.
The one-per-cent tax on the value of Canadian real estate owned by non-residents considered to be vacant or underused mimics the speculation and vacancy tax that has been in place in B.C. since 2018, and is aimed at addressing Canada’s housing crisis and make ownership more affordable for citizens and permanent residents. The move coincides with the two-year federal ban on residential home purchases by foreign buyers that went into effect Jan. 1 (and which does not apply in Whistler).
Theresa Walterhouse, the Whistler-based partner at accounting firm, BDO Canada, agreed that “most non-Canadian owners are unaware or just starting to hear about this tax and filing requirements.” She added in an email that the Canada Revenue Agency only released the form UHT-2900 and technical interpretations of the tax and its exemptions in January and into early February, “which means even tax professionals have only recently been able to understand the broad reach of the filing requirements and the exemptions available and start to reach out to their clients and contacts.”
Although the filing requirement still stands, there are a number of exemptions to the UHT for non-resident owners based on how the property is used. One is the “vacation exemption,” which is available to individual property owners in certain population areas, such as Whistler, and if the owner and/or their spouse occupy the property for a minimum of 28 days in a calendar year. Currently, use by other family members is not included in the in the 28 days—“not sure if that is an oversight or intended,” noted Walterhouse.
There are also exemptions for certain long-term rentals over 180 days but there is currently no exemption available for short-term rentals. However, Walterhouse believes “the intent in a resort area like Whistler is that the UHT should not apply if the property meets certain criteria and is ‘not residential,’ such as a commercial condo unit or hotel unit. This is really important for Whistler as a resort community, where many properties are zoned to promote short-term stays and visitor turnover to drive tourism dollars. The challenge, though, is that CRA has not been explicit with definitions or provided any examples in its guidance to follow.”
Other Canadian entities, such as private corporations, partnerships, trusts and most NPOs, are also required to file the annual return even if they are eligible for exemptions that protect them from tax liability, and could face a minimum $10,000 fine for failing to file.
“Generally speaking, the only individuals that are ‘excluded’ from the filing obligations are Canadian citizens and individuals with permanent residency in Canada (unless they are partners of a partnership or trustees of a trust),” Walterhouse said.
Opinions are divided on whether the UHT will actually have its intended effect. Both the Canadian and B.C. real estate associations have expressed significant concern with the tax.
“The potential benefits of the ban are likely to be modest,” read a September statement from the Canadian Real Estate Association. (CREA) “The experience with British Columbia’s Speculation and Vacancy Tax … provides some indication on the impact of a ban on foreign buyers. Their experience suggests such a measure can have a small effect on real estate markets, housing availability and affordability. These effects are largely isolated to condominium markets, with no statistically significant impact in smaller communities or other forms of real estate.”
There is also worry that the UHT could motivate a retaliatory tax on Canadians with property south of the border. On Feb. 15, Congressman Brian Higgins called for the U.S. to implement its own underused housing tax targeting Canadians. The CREA has recommended excluding American and Mexican homeowners from the tax.
Whenever new tax rules are rolled out, it can take time to iron out their specific applications, said Walterhouse.
“Tax rules can change, it is not uncommon for Finance to make corrections for unintended consequences after the initial roll-out. Hopefully tax professionals and advocacy groups, such as the chamber network or tourist organizations, can work with Ottawa to make appropriate changes,” she said.
Walterhouse advised concerned owners to contact a qualified accounting firm to understand their specific filing obligations and potential tax exemptions. Non-resident individuals will require International Tax Numbers, while corporations will need Business Numbers and RU program numbers in order to file a return.
For more information on the tax, who has to file and the exemptions available, visit canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html.