On June 9, 2022, the Underused Housing Tax (UHT), a new bill that levies an annual one per cent tax on foreign-owned residential properties considered underused, received royal assent.
Similar to B.C.’s Speculation and Vacancy Tax, the UHT is designed to prevent non-Canadian residents from buying Canadian real estate and driving up housing costs without actually living there.
When the tax was first proposed in August 2021, the Federation of Ontario Cottagers’ Associations (FOCA) was concerned that secondary property owners, such as cottagers, might be unintentionally caught in the crosshairs. If cottages fell under the definition of underused properties, owners would have to pay the tax.
“Without absolute clarity (being worked out currently in Committee hearings for Bill C-8) there was the fear that absentee [and] part-time, non-Canadian cottage residents would be subjected to a tax that was actually intended to address urban affordability and housing shortages,” said Terry Rees, president of FOCA.
The UHT legislation clarifies that the tax doesn’t apply to any Canadian residents, regardless of the number of properties they own within the country. The tax only applies to foreign owners. This means the bill could still impact Americans who own cottages in Canada.
However, when defining a “residential property,” the legislation’s language specifically targets detached homes, duplexes, triplexes, semi-detached homes, rowhouse units, and residential condos. It doesn’t mention cottages or recreational properties. Read the final version of the bill here.
The bill also exempts properties that aren’t suitable for year-round use. This means that if a cottage is zone residential but not winterized and can only be used for a portion of the year, it is exempt from the tax. Properties being rented out to someone on a long-term basis at a “fair rent” price are also exempt. Otherwise, the owner is expected to occupy the property for a minimum of six months a year.
For foreign owners who are required to pay the tax, an annual declaration for each residential property owned must be filed by April 30. The first filing would happen on April 30, 2023. The tax is then calculated as one per cent of the property’s taxable value.