A Rant About Good Intentions: The Canadian Underused Housing Tax of 2022 - Issue 384

In 2022, the Canadian government introduced the Underused Housing Tax, a policy aimed at addressing the issue of housing affordability and under-utilized properties. As housing prices in many Canadian cities (Toronto and Vancouver specifically) skyrocketed over the years, this measure was viewed as a way to curb speculative housing investments and ensure that homes were being used for their intended purpose: to house people. Before we get to the rant, let’s take a deep dive into what the Underused Housing Tax entails and its implications.

Several key objectives were cited when introducing the Underused Housing Tax:

To Combat Housing Speculation: By taxing vacant or underutilized properties, the government aimed to discourage individuals from purchasing homes solely as speculative investments.

To Increase Housing Availability: The tax was seen as a mechanism to encourage property owners to rent out or sell underused properties, thereby increasing the supply of available homes in the market.

To Generate Revenue: Revenue generated from this tax would be directed towards financing housing affordability initiatives and other public projects revolving around solving the housing crisis.

How Does the Tax Work?

The Underused Housing Tax imposed a 1% tax on the value of residential properties that are considered vacant or under-utilized. These under-utilized homes were determined by first doing a property assessment. Homeowners were required to file a declaration each year, stating the use they had for their property. Properties that were not regularly occupied or rented out for at least six months of the year were deemed underused.

There were several exemptions to the tax. For example, properties under construction or renovation, properties of deceased owners, and those with owners who are temporarily absent for medical reasons or employment were typically exempt.

Following the announcement, there was mixed feedback from the real estate sector. Some believed it would effectively reduce speculation, while others felt it could potentially deter investment or lead to administrative burdens for homeowners.

While it's still early to determine the long-term effects, initial reports suggested an increase in rental listings in cities with previously high numbers of vacant homes while people combatted this tax while attempting to protect their investment. This may only further the isssue of housing availability (and affordability).

The revenue generated from this tax has been substantial - over $200M in the last year published (2020). The federal government committed to reinvesting these funds into affordable housing initiatives, addressing homelessness, and other housing-related projects.

While this sounds like a good idea, there are some criticisms and challenges.

This is where the rant begins.

The tax was designed to discourage speculators (read foreign buyers) in the Vancouver and Toronto markets from purchasing condos and homes as a refuge for their money & that this was not allowable. There were too many empty condos and homes that had been purchased with foreign money, and the homes were sitting empty & unused. In order for the law to not blatantly be xenophobic, it requires all property owners to “register” their non-owner occupied properties and complete a tax return.

The deadline for initial returns and registration is Oct 31, 2023. If you own residential properties, single family homes, townhouse units, condo’s, cottages - everything up to and including triplexes - you need to file.

If you and your spouse own a rental property or a cottage you both need to file.

Our properties are fully rented and therefore exempt from this tax - for now.

I’m struggling not to sound like a conspiracy theorist, but with the information CRA is gathering on real estate, ownership and valuation details, and given this government's track record on not being transparent and honest, I have a nasty feeling that the Trudeau government isn’t finished with finding new ways to tax real estate in this country.

This piece of legislation had the potential to be groundbreaking, especially at addressing intentionally vacant properties. It’s generating an incredible amount of revenue and yet the main problems of lack of inventory, high prices and high rents still persist. If I were the housing Minister and raking in that kind of tax revenue, I would be making a very big deal about putting that money to good use in helping to solve the real estate predicament.

But unfortunately, there’s not much to hear but but crickets from Ottawa these days.

Full details on the UHT can be found here on the CRA website. The form to file is located here.

If you’ve got questions around the UHT, talk to your accountant or real estate professional, because like Halloween, the penalties here are positively scary.

Enjoy the weekend.

Paul

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