The beginning of 2022 is marked by the spectre of a number of new taxes in Canada which would target high net worth individuals. On December 14, 2021, the federal government tabled Bill C-8 which, if adopted, would create a “Tax on Unproductive Use of Dwellings in Canada” as of 2022.
In general, a 1% tax will apply to the owner of a residential property, other than a citizen or permanent resident of Canada, unless the property was used during the calendar year as a place of ordinary residence by the owner, the owner’s spouse or a student child. Relief will be provided for the year of acquisition for certain first-time purchasers.
The law will also exempt real property that is subject to periods of 30 days or more of qualifying occupancy, whether or not successive, and totalling at least 180 days in a calendar year. As such, residential leasing for the benefit of a third party or certain family members, among others, may constitute qualifying occupation. In the latter case, the rent charged must meet the reasonable minimum threshold required by law. Housing under a work permit by the owner or his or her spouse, or residential use by a citizen or permanent resident who is the owner, his or her spouse or child, will also qualify.
The tax will also extend to an interest in real property as a beneficiary of a trust or as a partner in a partnership holding residential real property, unless all the trustees or partners, as the case may be, are citizens or permanent residents of Canada. As for Canadian corporations holding such property, they will be subject to taxation if 10% or more of the value or voting rights are held directly or indirectly by individuals who are not citizens or permanent residents of Canada.
Finally, a number of situations, which seem obvious to us, will also be exempted, including seasonal inaccessibility of the property, vacancy due to a disaster or renovations, in some cases, unfinished construction or death of the owner.
The Bill is highly technical and riddled with conditions and exceptions that suggest issues of interpretation and many interactions with other legislation in the areas of income tax, immigration and real estate law. It also reflects the intent of the legislator to counter attempts to evade payment through an imaginative and opaque holding structure.
If you are planning to purchase a residential property in Canada, do not hesitate to contact us. A member of our team of lawyers specialized in taxation or real estate law will be pleased to accompany you in this project and to measure the impacts of the announced changes on your Canadian tax bill.
The comments offered in this article are meant to be general in nature and are not intended to provide legal advice regarding any individual situation. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate for your circumstances.
About the author
Shlomi Steve Levy is a Partner of Levy Salis LLP and is a member of the Quebec Bar, the Law Society of Ontario (L3), the Society of Trust and Estate Practitioners, and the Canadian Bar Association.
