As of January1, 2022, the federal government has introduced legislation covering all owners of residential property in Canada. The Underutilized Dwelling Tax Act (“Act”) is designed to slow the escalation of the real estate market in certain regions of Canada. We also invite you to consult the initial terms and obligations in our article: You could be affected by the new Underutilized Dwelling Tax!
Proposed changes to the Underutilized Dwelling Tax
Canada’s Finance Minister Chrystia Freeland’s Fall Economic Statement for 2023 made significant proposals for changes to the Underutilized Dwelling Tax (“UDT”), and announced related legislative and regulatory proposals.
The most significant changes, if adopted, should be very welcome by many Canadian individuals and entities who had little understanding of the need to file a return simply because they owned one or more residential properties, even if they ultimately had no tax to pay.
In particular, from calendar year 2023 onwards
The federal government is proposing to make “specified Canadian corporations”, partners of “specified Canadian partnerships” and trustees of “specified Canadian trusts” “excluded owners” for the purposes of the TLSU, so that these “persons” will no longer be required to file TLSU returns;
Incidentally, broaden the definitions for these categories of persons to offer relief to a wider range of Canadian ownership structures.
In addition, the government is proposing to modify retroactively (i.e. from calendar year 2022) the amounts of penalties for failure to file a return:
- From $5,000 to $1,000 for an individual;
- From $10,000 to $2,000 for a corporation.
On another note, the government is proposing to introduce, starting in calendar 2023, a new exemption from the TLSU for residential buildings held as a place of residence or lodging for employees. However, the exemption would not apply to buildings located in a population center in a census metropolitan area or census agglomeration with 30,000 or more residents.
The federal publication also includes the following proposed technical changes:
- As of calendar year 2022, unitized apartment buildings (“condominiums”) would no longer be “residential buildings” for TLSU purposes;
- Starting in calendar year 2024, an individual or spouse could only claim the TLSU exemption on “vacation properties” for a single residential building in a given calendar year.
Declaration filing deadline
As a reminder, for both calendar years 2022 and 2023, the deadline for filing a TLSU return, and for making the related payment, remains April 30, 2024, as announced by the federal government on October 31.
Our colleagues Sylvie Therrien and Jerry Médénou are available to help you comply with your TLSU obligations.
