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On January 1, 2022, a tax on underused housing in Canada came into effect. This tax on vacant or underused housing in Canada is the result of the Underused Housing Tax Act, which received Royal Assent on June 9, 2022 (the "Act", link).

This new tax is amongst a number of measures introduced to slow down the overheating real estate markets in Canada. One only has to think of the rental cost of a property located in Vancouver, Toronto, or Montreal to understand the intention behind these measures. Other measures include the newly enacted Prohibition on the Purchase of Residential Property by Non-Canadians Act (link), which also came into effect earlier this year.

The Act essentially imposes two obligations on affected owners:

• to file a return for each residential property held in Canada as of December 31 of a given year, and
• to pay the relevant tax unless they qualify for an exemption for the calendar year in respect of the property held. Even if the relevant tax need not be paid, the filing of the return will still be required.

It should be noted that the penalties for the late filing of a required return can be substantial; the minimum penalties are $5,000 for an individual and $10,000 for a corporation.

With multiple definitions (residential property, dwelling unit, excluded owner) and multiple exemption situations, navigating the Act can be a tedious exercise for affected owners, mainly non-residents of Canada. The tax team at Spiegel Sohmer Inc. is available to assist you in this regard.