Tax collected just $49m as reporting rules caused challenges for Canadians and foreign owners alike
The Canada Revenue Agency (CRA) has waived nearly $2.5bn in interest and penalties tied to Ottawa’s tax on vacant and underused homes owned by foreign nationals, according to The Globe and Mail.
This amount significantly surpasses the projected annual revenue of the underused housing tax (UHT).
The UHT, effective since 2022, applies a 1 percent annual levy on underused or vacant residential properties held by foreign owners. The policy aims to increase housing availability.
However, the tax's complex reporting requirements initially affected many Canadians, prompting the CRA to offer repeated relief for late filings.
Filing obligations for Canadian homeowners and corporations were largely eliminated starting with the 2023 tax year.
In its public accounts, the federal government disclosed that the CRA waived nearly $2.5bn in interest and penalties for the 2022 tax year. This figure dwarfs the $49m collected through the UHT in fiscal 2023-24.
John Oakey, vice-president of taxation at Chartered Professional Accountants of Canada, stated via email that the significant amount of waived penalties likely reflects the administrative challenges and confusion caused by the tax when it was introduced.
Oakey also suggested that the tax affected many Canadians, not only foreign nationals.
Tax experts have criticized the UHT’s design for creating unnecessary complexities. Reporting rules required many Canadian homeowners to file returns solely to claim exemptions, while penalties for non-compliance were steep.
Initially, individuals faced fines starting at $5,000, and corporations faced $10,000. Ottawa later reduced the minimum penalties to $1,000 for individuals and $2,000 for corporations, retroactive to 2022.
The tax also complicated ownership scenarios. Homeowners with titles held through trusts or partnerships were required to file returns.
In some cases, co-signing a mortgage with adult children created a ‘bare trust,’ while jointly owned properties were considered partnerships under common law. These conditions left many Canadians unaware of their reporting obligations.
To mitigate these challenges, the CRA waived interest penalties twice, extending the 2022 UHT filing deadline from April 30, 2023, to October 31, 2023, and then to April 30, 2024.
CRA spokesperson Nina Ioussoupova confirmed that the waived penalties amounted to $2.5bn for late 2022 UHT filings submitted by April 30, 2024.
The CRA granted more than 531,000 waivers, with an average value of approximately $4,600, according to Oakey. He noted that the number of waivers exceeded the government’s initial estimate of foreign owners impacted, further indicating that many Canadian taxpayers were affected.
Despite the $2.5bn in waived penalties, the UHT generated $49m in revenue during fiscal 2023-24, covering both 2022 and 2023 tax years.
Ioussoupova also stated that the CRA spent $59m on implementing and administering the tax over fiscal 2022-23 and 2023-24, with an additional $900,000 allocated for advertising and public awareness campaigns.
