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Canada’s Underused Housing Tax: No Good Options For U.S. Residents Who Own A Second Home In Canada

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Introduction – Responding To Canada’s Underused Housing Tax

Canada’s Underused Housing Tax is NOT a tax imposed because the “foreign owner” doesn’t spend enough time in the property. Rather Canada’s Underused Housing Tax is a tax imposed because the “foreign owner” doesn’t make the property sufficiently available to non-owners!!

This is the fourth in my series of posts about Canada’s “citizenship-based” Underused Housing Tax.

The first three post are:

1. US Residents Who Own Residential Property In Canada May Be Subject To Various Vacant And Underused Property Taxes

2. NY Congressman Brian Higgins Draws Attention To The Injustice Of Citizenship Taxation By Challenging Canada’s Underused Housing Tax

3. U.S. FBAR And Form 8938 Penalties May Be A Bigger Problem For U.S. Residents Than Canada’s Underused Housing Tax

The purpose of this post is two-fold:

First: to explain what “Canada’s Underused Housing Tax” really means for “foreign owners” of certain Canadian property:

Conclusion: It means that foreign owners who own property that is NOT in a designated recreational location and who do NOT release their property into the rental market will be forced to pay the 1% tax.

Second: to explain that owners of most Canadian residential property that is not in a designated recreational location, who are neither Canadian citizens nor permanent residents of Canada can avoid releasing their property into the rental market ONLY if they either:

1. Pay Canada’s Underused Housing Tax

2. Sell their property in Canada

In my opinion U.S. (and other foreign residents) should be advised to simply pay the annual tax.

The Government Of Canada’s “Underused Housing Tax” is designed to force “foreign owners” of property to choose among the choices of: releasing their property into the rental market, paying the 1% tax or selling their property!

Explaining this conclusion.

This post ignores the “fringe situations” of properties that are newly purchased, uninhabitable, etc. I am focussing on the situation as it is likely to affect the majority of people. I urge people to read the actual legislation.

Final warning!!! All individual owners of residential housing in Canada who are neither Canadian citizens nor permanent residents of Canada are required to file the Underused Housing Tax return even if the tax is not payable! The penalty for failing to file the return is $5000 CDN.

Here we go …

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US Residents Who Own Residential Property In Canada May Be Subject To Various Vacant And Underused Property Taxes

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Introduction And Purpose

Many Canadian cities are experiencing the combined effects of a shortage of affordable housing and a rise in housing prices. In short housing (whether to own or to rent) has become less available and more expensive. Factors contributing to this include: Investors preferring to “rent” their investment properties on short term rental platforms rather them releasing them into the rental market, Provincial Landlord and Tenant laws which impose laws on small landlords which are perceived as unfair, increases in property values (caused by low interest rates) which have caused an imbalance between the cost of buying residential real estate and the amount it can be rented for. (It makes no sense for a person to purchase a property for one million dollars and rent it for $2000 per month.)

Canadian Cities – Clear Laws And Easy To Understand And Significant Discontent From U.S. Owners

The above tweet references a fascinating article Wall Street Journal article written in 2017 by a U.S. owner of a Vancouver, BC condominium claiming that the tax was directed at Americans. It’s a fascinating read.

A reply to the above tweet pointed out that:

Interesting! At the current rate of Vancouver’s vacancy tax (5%), and given BC’s vacancy tax (2%) and the federal underused housing tax (1%), the author’s condo (valued in 2017 at $3.3 million) could trigger additional annual tax of $264,000 for 2023 alone (if valued the same)

As the $264,000 figure demonstrates, these “Vacant Property Taxes” are serious business which can create significant tax and penalty liability. In some cases, the taxes may force people to sell their properties!

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