Budget 2021 disclosed the federal government's intention to implement a tax on underused housing to enforce the principle that homes in Canada are to live in; they are not a means for foreign, non-resident owners to passively store their wealth.1 This intention was realised when the Underused Housing Tax Act2 (the "Act") received Royal Assent on June 9, 2022 and introduced the Underused Housing Tax (the "Tax").

The Tax is a national, annual one percent tax on the value of non-resident, non-Canadian owned residential real estate that is considered to be vacant or underused, retroactive to January 1, 2022.

How much is the Tax?

The Tax is 1% of either3:

  1. the residential property's taxable value, which is the greater of:
    1. the property's assessed value for the purpose of computing property taxes; and
    2. the property's most recent sale price on or before December 31 of the calendar year; or
  2. if elected, the residential property's fair market value for the calendar year.

Who does the Tax apply to?

The Tax applies to each owner of residential property in Canada, other than excluded owners.4

An "owner" means a person who owns, is a life tenant under a life estate, or a life leaseholder of a residential property, or who has continuous possession of the land on which the residential property is located under a long-term lease.5

A "residential property" means a property situated in Canada that is a detached house (containing not more than three dwelling units), or a part of a building that is a semi-detached house, row house unit, residential condominium unit or other similar premises.6

An "excluded owner" means a person that is on December 31 of the calendar year7:

  • a citizen or permanent resident of Canada;
  • a corporation incorporated under the laws of Canada or a province whose shares are listed on a stock exchange in Canada;
  • a trustee of a mutual fund trust, a real estate investment trust, or a SIFT trust;
  • a registered charity;
  • a cooperative housing corporation, a hospital authority, a municipality, a public college, a school authority, a university, or a para-municipal organization; or
  • an Indigenous governing body or a corporation wholly owned by such a body.

In short, non-resident, non-Canadians who own or are a life leaseholder of a house or residential unit in Canada will be required to pay the Tax.

What about Private Corporations, Partnerships and Trusts?

Notably, the list of excluded owners does not include Canadian private corporations, partnerships or trusts. However, exemptions from the Tax do apply to these entities under the following circumstances:

  1. Specified Canadian Corporation Exemption8 – this exemption applies if the property is owned by a specified Canadian corporation, which is a Canadian corporation other than a corporation:
    • in respect of which non-resident, non-Canadian individuals and/or corporations have ownership or control of shares representing 10% or more of the value of the equity in the corporation or carrying 10% or more of the voting rights; or
    • without share capital having a chairperson or other presiding officer who is a non-resident, non-Canadian; or having a board with 10% or more non-resident, non-Canadian directors.
  2. Specified Canadian Partnership Exemption9 – this exemption applies if the property is owned by a person, solely in their capacity as a partner of a specified Canadian partnership, which is a partnership where each member of which is an excluded owner or a specified Canadian corporation.
  3. Specified Canadian Trust Exemption10 – this exemption applies if the property is owned by a person, solely in their capacity as a trustee of a specified Canadian trust, which is a trust under which each beneficiary having a beneficial interest in the residential property is an excluded owner or a specified Canadian corporation.

Are there Other Exemptions?

There are a number of other exemptions to the Tax noted in the Act; a few notable ones include:

  1. Primary Place of Residence Exemption11 - this exemption applies if the property is the primary place of residence of:
    • the individual or the individual's spouse or common-law partner; or
    • a child of the individual or the individual's spouse or common-law partner who occupies the property for the purposes of authorized study at a designated learning institution.
  2. Qualifying Occupancy Period Exemption12 - this exemption applies if the number of days during the calendar year that are included in a qualifying occupancy period in respect of the property add up to at least 180 days. A qualifying occupancy period means a period of at least one month in a calendar year during which qualifying individuals have continuous occupancy of a dwelling unit that is part of the residential property.
  3. Uninhabitable Exemption - this exemption applies if the property is:
  • ·not suitable for year-round use as a place of residence13; or
  • uninhabitable due to renovations14 or due to a disaster or hazardous condition caused by uncontrollable circumstances15.

Who has to File a Return?

All owners, except excluded owners, are now required to file an annual return for each residential property they own in Canada on or before April 30th of the following calendar year, with significant penalties for failure to file.16 The Tax, where applicable, is also due on the same date.17

For clarity, if an owner is not an excluded owner, they must file a return even if they qualify for an exemption.


In summary, if you are a Canadian citizen or permanent resident, or any other excluded owner, who owns residential property in Canada, you can ignore the Act entirely.

If you own residential property in Canada and you are not an excluded owner, you must file an annual return for each residential property that you own. And if you are not an excluded owner and you do not qualify for an exemption under the Act, you must pay the Tax.


1. Budget 2021 (https://www.budget.gc.ca/2021/report-rapport/p4-en.html).

2. SC 2022, c 5, s 10.

3. The Act, Sections 6(3), 6(4).

4. The Act, Section 6(3).

5. The Act, Section 2.

6. Ibid.

7. Ibid.

8. The Act, Section 6(7)(b).

9. The Act, Section 6(7)(a)(i).

10. The Act, Section 6(7)(a)(ii).

11. The Act, Section 6(8).

12. The Act, Sections 6(1), 6(9).

13. The Act, Section 6(7)(c).

14. The Act, Section 6(7)(f).

15. The Act, Section 6(7)(e).

16 The Act, Section 8.

17. The Act, Section 6(6).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.