Fed tax on vacant homes for foreign nationals unable to raise any meaningful revenue

A federal levy on vacant homes owned by foreign nationals that also ensnared thousands of Canadian taxpayers has so far failed to raise any meaningful revenue, with almost all tax returns assessed so far showing no balance, documents recently tabled in the House of Commons show.

 

Ottawa’s underused housing tax (UHT), which took effect at the start of 2022, imposes an annual 1 per cent tax on the value of foreign-owned real estate that is deemed to be underused or vacant. The government has variously billed the measure as a way to deter foreign real estate investors from leaving their homes in Canada empty and as a means to raise tax revenue for housing affordability initiatives.

 

But the Canada Revenue Agency had assessed just $74-million through the UHT as of mid-June of this year, according to the documents. And of the roughly 670,000 UHT returns assessed by then, 98 per cent had no amount owing, the tax agency said, responding to written questions submitted by Conservative MP Adam Chambers.

 

The numbers appear to confirm what has been a longstanding criticism of the UHT by many tax experts, who warned that the levy, as initially designed, imposed burdensome tax-filing requirements on swaths of Canadian taxpayers who wouldn’t ultimately owe any money to the government.

“This is just such a waste of precious resources,” said Kim Moody, founder of Moodys Private Client Law LLP in Calgary.

 

Over all, the UHT has been a complex administrative exercise with no clear public policy purpose, he said.

 

The CRA said it spent $18-million in the 2022-23 fiscal year to implement and administer the tax, and another $41-million in the 2023-24 fiscal year, for a total of $59-million over the two years. The agency also said it had spent just over $900,000 on advertising and promotion to increase public understanding and awareness of the measure.

 

The parliamentary documents show the CRA had 124 full-time workers assigned to UHT files in 2022-23 and 351 in 2023-24.

 

John Oakey, vice-president of taxation at Chartered Professional Accountants of Canada, which represents the profession at the national level, said he was “not surprised” to hear that an overwhelming majority of UHT returns assessed so far have yielded no revenue for the government.

 

Mr. Oakey pointed to an estimate provided by a Department of Finance official to the Standing Senate Committee on National Finance in May, 2022, that only about 30,000 residential units, out of a total of 16.5 million units in Canada, would be subject to the tax.

But while Ottawa initially portrayed the levy as a measure narrowly targeted at wealthy real estate investors based abroad, the initial wording of the new tax rules also made it mandatory for Canadians who owned homes through certain trusts, corporations or partnerships to file a special tax return. Failure to send in the paperwork could result in thousands of dollars worth of penalties, tax experts warned.

 

Among the unsuspecting taxpayers who learned from their accountants they might have to fill a UHT return were parents who had co-signed their adult children’s mortgage to help them buy a house, who could be deemed to co-own the property through what’s known as a bare trust, and couples who jointly owned rental property, who could be considered to be a partnership from a legal point of view.

Several Canadians reported spending hundreds of dollars in accounting and legal fees just to understand whether they were subject to the UHT filing requirements.

 

After twice extending the cutoff for filing UHT returns for 2022, Ottawa announced in November of last year it would largely scrap the need for Canadians to file UHT returns for 2023 and following years. The measure became law in June of this year.

 

However, the government has kept in place an obligation to send in UHT returns for 2022.

 

For Canadians who should have sent in a UHT income tax declaration for 2022 but chose not to, there is still a risk of incurring penalties, Mr. Oakey warned, although Ottawa has also lowered the minimum penalties for failing to file.

 

“It’s like a skeleton in the closet.”

 

 

 

This article was first reported by The Globe and Mail