estate planning
iStock.com / Andrii Yalanskyi

The federal government has released a motion to enact the 1% underused housing tax (UHT) first proposed in the 2021 federal budget, which is slated to take effect Jan. 1.

The federal government released final details for the UHT in its fall economic update on Tuesday, following a consultation that ran from August to September.

The draft legislation proposes that an owner’s interest in a residential property would be exempt from the tax for a calendar year if the property is the “primary place of residence” during that calendar year* for the owner, the owner’s spouse or common-law partner, or their child — but “only if the child is in Canada for the purposes of authorized study and the occupancy relates to that purpose.”

Exemptions to the UHT listed in the consultation paper were carried over to the draft legislation. These exemptions include:

  • qualifying occupancy
  • specified Canadian corporations
  • properties not suitable for year-round use
  • properties uninhabitable due to disaster or hazardous conditions (for 60 consecutive days or more)
  • properties undergoing major renovations (for 120 days or more)
  • death of owner during the year
  • newly constructed properties (i.e., not completed before April 1)
  • new properties held as inventory by a developer

Further, an owner’s interest in a residential property would be exempt for the calendar year in which the owner first acquires that interest.

In the fiscal update, the government said it “plans to bring forward an exemption for vacation [and] recreational properties” that would apply if the property is located in a rural area populated by fewer than 30,000 residents and is personally used by the owner (or the owner’s spouse or common-law partner) for at least four weeks in the calendar year.

This exemption did not specifically appear in the notice of ways and means, however.

Owners may elect to use the fair market value of the residential property, “as determined in a manner satisfactory to the Minister,” at any time between Jan. 1 of the calendar year and April 30 of the following year.

UHT returns for the 2022 calendar year must be filed with the Canada Revenue Agency on or before April 30, 2023, with any tax payable remitted on or before that date.

Other pending tax issues

The update addressed the proposed luxury tax, saying that draft legislation and details on when the tax would come into force would be released in 2022.

However, several lingering tax issues and promises were not addressed, including:

  • forthcoming legislative updates on Bill C-208, which were to “apply as of the later of either November 1, 2021, or the date of publication of the final draft legislation”
  • the 3% corporate surtax on banks and insurers on earnings above $1 billion, as well as the Canada Recovery Dividend
  • a minimum tax rule to ensure that top earners (those earning more than $216,511 in 2021) pay at least 15% per year
  • the doubling of the Home Buyers’ Amount to $10,000 from $5,000
  • a tax-free First Home Savings Account to enable Canadians younger than 40 to save up to $40,000 toward their first home, with no taxes on contributions or withdrawals
  • an “anti-flipping tax” on residential homes, requiring property to be held for at least 12 months
  • an increase to the guaranteed income supplement by $500 for single seniors and by $750 for couples, beginning at age 65
  • specific “allocation to redeemers” rules for ETFs, which won’t apply to tax years that begin before Dec. 16, 2021
  • an increase to the CPP survivor’s benefit by 25%
  • a new Canadian disability benefit modelled on the guaranteed income supplement
  • an increase to the disbursement quota

*The original version of this article stated that the exemption would apply if the property was the primary place of residence for one continuous month. This exemption did not appear in the consultation paper. Return to the corrected sentence.