Tax season has arrived, and with it, the usual headaches and confusion. But this year, a recent change to the federal government’s Underused Housing Tax (UHT) could make things a lot easier for cottage owners.
The UHT was an annual one per cent tax implemented in 2022 that applied to non-Canadian property owners who occupy their property for less than 180 days per year. The idea was to dissuade foreign residents from buying properties in Canada and jacking up already skyrocketing housing costs.
But it led to years of confusion among non-Canadian cottagers, many of whom technically qualified for the tax due to the seasonal nature of cottaging, despite it being intended to bring down housing prices in primarily urban centres. These foreign cottage owners were required to file a return and claim an exemption for their recreational properties.
There was also confusion among Canadians who owned cottages indirectly via a trust, partnership, or corporation. These cottagers also had to file a return and claim an exemption to not pay the tax. That is, until the government amended the tax bill in 2023 to eliminate this requirement.
Now, the feds are scrapping the UHT altogether. The repeal was announced in Budget 2025, tabled November 4, due to its “inefficient” and “costly” nature, according to the budget. Since the budget was approved by the House of Commons on November 17, “the bill is almost certain to pass and receive royal assent,” says an explainer from the financial education institution the Knowledge Bureau.
Cottagers should keep an eye on the final decision, but when it does receive royal assent, the UHT will no longer impact filing for the 2025 tax year and beyond. However, filings for tax years 2022-2024 are still subject to the UHT, explains a new release from Brian Morcombe, BDO’s tax practice leader. This includes the application of penalties and interest for failing to file a return or for late payment during these tax years. Fines for failing to pay the UHT range from a minimum of $1,000 for individuals and $2,000 for corporations.
Also important to note is that the proposed change to the federal tax law does not impact provincial or local vacant home taxes that may apply to cottagers across Canada. B.C., for example, still imposes its Speculation and Vacancy Tax, which is also intended to reduce foreign ownership and home vacancy to keep prices down.
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