Two recently adopted pieces of Canadian legislation, the Underused Housing Tax Act and the Prohibition on the Purchase of Residential Property by Non-Canadians Act, may significantly impact United States citizens and other non-Canadians who are current or prospective owners of Canadian real property.

Current Owners: Underused Housing Tax Act

Effective for the 2022 tax year, the Underused Housing Tax Act imposes a 1% Underused Housing Tax (“UHT”) on Canadian residential property considered “vacant” or “underused” housing and owned by an “affected owner.” Certain exceptions exist with respect to the payment of the UHT based on various factors. However, without regard to the exempt status of the residential property, each “affected owner” must file Form UHT-2900 (Underutilized Tax Return and Election Form).

Form UHT-2900 for the 2022 calendar year must be filed by April 30, 2023, and is readily available on Canada’s official government website. Failure to timely file a UHT return can result in a minimum penalty of $5,000 for individuals, and $10,000 for corporations. Accordingly, United States citizens owning residential property in Canada should ensure Form UHT-2900 is filed in a timely manner, if applicable.

Prospective Owners: Prohibition on the Purchase of Residential Property by Non-Canadians Act

Effective as of January 1, 2023, the Prohibition of Purchase of Residential Real Estate by Non-Canadians Act will prohibit “non-Canadians” (as defined below) from directly or indirectly purchasing residential property in Canada for a period of two years, with the exception of certain transactions, including: (i) acquisitions of property rights due to death, divorce, separation or gift; (ii) leasing dwelling units to tenant; (iii) transfers pursuant to a trust agreement created prior to Act’s effective date; and (iv) transfers related to the exercise of a security interest or right by a secured creditor.

The Act defines the term “non-Canadian” to include: (i) non-Canadian citizens or permanent residents; (ii) foreign corporations and entities (“Foreign Entities”); and (iii) Canadian corporations and entities controlled by otherwise prohibited Foreign Entities.

The purchase restrictions apply to any “residential real property” located within a “census agglomeration” or a “census metropolitan area,” specifically including: (i) detached residences containing three or less dwelling units; (ii) part of a building (such as a residential condominium unit or similar property) treated as a separate parcel or division of real property; or (iii) vacant land zoned for residential or mixed use, and is located within a “census agglomeration” or a “census metropolitan area.”

Before engaging in any residential purchase transactions in Canada on or before December 31, 2025, the property’s location within one of the above-described census regions should be confirmed.