Underused housing tax to generate $694 million: PBO

The underused housing tax (UHT) could generate $693.9 million of tax revenue over the next five years, including $131.7 million for 2023–24, according to a projection from the Parliamentary Budget Officer published Friday.

However, the projection did not include the government’s costs to administer the UHT, such as reviewing UHT returns and tax enforcement.

“Given their magnitude, these costs could significantly reduce the net revenue from the UHT,” the PBO report said.

The Canada Revenue Agency estimates it’s spent $59 million so far implementing and administering the UHT.

The 2021 federal budget estimated the UHT would generate $700 million over four years, with $200 million of that amount raised in 2022–23. The revenue would help “support the government’s investment to make housing more affordable for Canadians,” the government said.

In June 2023, a Department of Finance official said the UHT would generate $875 million between 2022–23 to 2027–28, and $140 million annually thereafter.

A CRA spokesperson told Advisor.ca last month the agency had assessed $49 million in UHT as of March 4, with 578,910 UHT returns processed so far.

The CRA also confirmed it had spent $59 million administering the tax, including by hiring 350 people, as of Feb. 14.

The UHT is an annual 1% tax on the ownership of vacant or underused housing in Canada, effective as of 2022.

The UHT primarily targets foreign owners of Canadian residential property, but a Canadian who owns a property through a trust, corporation or partnership must file a UHT return. If the trust, corporation or partnership is substantially or entirely Canadian, it may qualify for an exemption from the UHT as a “specified” Canadian trust, corporation or partnership.

The government said in the 2021 budget that the UHT had two goals: raise revenue to be directed to its housing affordability initiatives and make housing more available for Canadians.

However, the CRA spokesperson said in March that “the strategic intent of the UHT is not to collect additional tax dollars, but is instead one of the many tools the Government of Canada is using to combat the housing crisis in Canada.”

The Department of Finance, meanwhile, told Advisor.ca that “the [UHT] is designed to ensure foreign, non-resident owners who do not live in Canada pay their fair share,” but did not comment as to whether the tax was meant to generate additional tax revenue to fund housing affordability initiatives.

To arrive at its projections, the PBO constructed a tax base using data from 2022 UHT returns that the CRA had received and assessed since January 2024, British Columbia’s speculation and vacancy tax, and the number of residential properties in B.C.

The PBO cautioned that its estimates may not be accurate because data from 2022 UHT returns is still incomplete. It also did not model or incorporate behavioural responses to the UHT.

UHT returns due April 30

The CRA announced on March 27, 2023, that it would give taxpayers a six-month extension to file the 2022 UHT return without penalties. Then, on the same day as the Oct. 31 extended deadline, the CRA announced a second extension for the 2022 tax year until April 30, 2024, the same deadline date for the filing of the 2023 UHT return.

In the fall economic statement, the government proposed expanding the definition of “excluded owner” — a taxpayer who doesn’t have an obligation to file a UHT return — to include specified Canadian corporations, trusts and partnerships.

However, the proposed change would only apply for 2023 and subsequent years. Specified Canadian entities would still have a filing requirement for 2022.

The federal government is also proposing to reduce penalties associated with the failure to file a UHT return to $1,000 for individuals from $5,000 currently, and to $2,000 for a corporation from $10,000.

The proposed change would be effective retroactively to 2022. The changes have not been enacted in legislation, but the CRA appears to be prepared to administer the UHT rules for 2023 and onward.

On Feb. 29, the CRA provided taxpayers with the 2023 UHT return, which included a revised definition of excluded owner that aligned with the government’s proposed changes to the UHT. On March 8, CRA published updated guidance to “illustrate how the proposed amendments would apply.”

However, the CRA said the guidance shouldn’t be taken as a statement “that the proposed amendments will in fact be enacted into law in their current form.”

In the 2024 budget, the government said it intended to proceed with its proposed changes to the UHT outlined in the fall economic statement, but did not provide other details.