While US lawmakers decry recent Canadian legislation (Underused Housing Tax) as being unfair to US citizens, John Richardson considers how the US’ own Citizenship Based Taxation causes USCs bigger problems. (Posted with permission.)
Introduction
Canada’s Underused Property Tax came into force effective January 1, 2022. The return for the 2022 year is due on April 30, 2023. Generally, a tax of 1% of the value of the property will be imposed on the owners of property that are not occupied in an acceptable manner (principal residence or rented out) for at least six months of the year. The rules are drafted in a way that would appear to exclude short term rentals (think AirBNB) from meeting the test for “occupancy”. In addition, individuals who are are neither Canadian Citizens nor Permanent Resident are (1) required to file a return and (2) may (depending on whether the property meets the test for occupancy) be subject to the 1% tax. To put it simply: U.S. Citizens and Residents May Be Subject to “Canada’s Underused Property Tax”. New York Congressman Brian Higgins is been very active in drawing attention to the unfairness of “Canada’s Underused Property Tax” being applied to U.S. citizens. He has launched a public and visible campaign to pressure the Government of Canada to offer an exemption to U.S. citizens.
The basic structure of Canada’s “Underused Housing Tax”
In contrast to the Municipal (Toronto, Ottawa and Vancouver) “Vacant Home Taxes“, Canada’s Underused Property Tax is complicated. It is likely that those required to file the return will need assistance.
I am confident that people will be “trapped” and unfairly penalized by Canada’s Underused Housing law. On its face, the law does not apply to property owned by Canadian citizens and permanent residents of Canada. The law creates various categories of owners ranging from those who are “excluded” from reporting, to those are required to report but are “exempt” from the tax and to those who are required to report and are subject to the tax. (It appears that those owning properties through Canadian Controlled Private Corporations will be required to report!) This law is far more complex than its city counterparts. The best (and evolving) information sources about Canada’s tax may be found at:
Canadian Government Summary Of Canada’s Underused Housing Tax Law:
https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html
The Text Of Canada’s Underused Housing Tax Law:
https://laws-lois.justice.gc.ca/eng/acts/U-0.5/FullText.html
The Actual Tax Return – Form UHT-2900 – Due April 30
uht-2900-22e
Many U.S. Residents May Not Be Aware Of A Potential “Reporting” Penalty Coming From The U.S. Government
Although not discussed, it is likely that many U.S. residents who own residential property in Canada have Canadian bank accounts located near their properties. They even be U.S. dollar bank accounts. Although these accounts are “local” to the property owned in Canada they are “foreign” to the United States. This raises the question of whether the existence and account balances are required to be reported to the IRS. The answer is maybe. The United States has VERY extensive (continued, see lower left)
