The underused housing tax is a tax that applies to the owners of second homes and vacant properties in Canada. The aim of implementing this tax is to incentivize homeowners to utilize their properties more efficiently, thereby assisting in alleviating housing shortages in specific areas. In this article, we’ll explain what the underused housing tax is and how it works so you can avoid incurring penalties if you’re subject to this law.
What is the Underused Housing Tax?
The underused housing tax is a tax that applies to homeowners who are not using their properties as they were intended. The amount of property taxes that you need to pay depends on the size of your residence and its use for generating income.
The Underused Housing Tax was introduced in 2016, along with several other measures designed to help curb real estate speculation in Canada’s most expensive cities. It applies only if one or more residences are being rented out–even then, only if those residences are deemed “underutilized” by municipal authorities (or their equivalent).
Suppose you reside in a 4-bedroom house and utilize only one room for short-term stays through Airbnb or any comparable service. In that case, the city may view this as an instance of underutilization, and you may be obligated to pay an annual fee based on the number of bedrooms employed for short-term rentals every year since 2016 (the year when these regulations were implemented).
Who is subject to the Underused Housing Tax Act?
The Underused Housing Tax Act applies to homeowners who have a second property or home that they do not use as their primary residence. This includes people who live in one province, but own property in another province.
The CRA requires these individuals to file annual reports with them on or before March 1st of each year. You can use the form T1135 Underused Rental Property, Income from Rental Property or Accommodation (Income Tax) as your report for this purpose. If you do not file this report by March 1st for any year, penalties will apply and may be as high as $2 per day after April 30th plus interest on any unpaid taxes owed from January 1st up until December 31st (even if you do file later).
How do you calculate the Underused Housing Tax?
The underused housing tax is calculated by subtracting the value of your property when it was last sold from its current value. Then, you subtract any capital gains exemption that may have been claimed on the sale. Finally, multiply this amount by your province’s underused housing tax rate. For example:
You purchased a home in 1990 for $100,000 and sold it in 2014 for $200,000 (with no capital gains exemption).
Your new home cost $300K and was assessed at $400K this year because it hasn’t been renovated since 1990 and has depreciated over time due to wear-and-tear or aging infrastructure (commonly referred to as “underutilized housing”).
What are the penalties for not filing an annual report?
The CRA will send you a notice of intent to impose the penalty if you don’t file an annual report. If you still don’t file an annual report, then the CRA will impose a penalty on top of any taxes owed. The amount of this penalty depends on how late your report is filed; it could range from $100 per month to $10,000 per month (or part thereof).
Who can help with your case?
If you are not sure about how to use the underused housing tax, it is a good idea to consult with Billah and Associates Inc, a professional tax and accounting firm in Mississauga, Ontario. If your property taxes are too high because of an error on your part, then these professionals can help explain this to Revenue Canada and get them reduced.
Tax experts like accountants, lawyers and mortgage brokers may also be able to provide advice on how best to take advantage of this tax benefit for those who want their own home but don’t have enough money saved up yet for down payments or closing costs (or both).
The underused housing tax act is designed to encourage homeowners to make better use of their properties.
The underused housing tax act is designed to encourage homeowners to make better use of their properties. If your property in Canada is not your primary residence or is not currently undergoing repairs, and has remained vacant for more than six months, you may be liable for the underused housing tax. This tax is applicable to residential properties that meet these conditions.
- You don’t live there full-time;
- You’re renting it out but haven’t been paying taxes on your rental income; or
- You’re not using it at all (e.g., because you have moved out).
Conclusion
The underused housing tax act is a great way to encourage homeowners to make better use of their properties. It can also help them avoid paying taxes on empty or vacant homes that could be used for other purposes. If you have questions about how this applies to your situation, contact AccountingMissisauga.ca today.
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