Empty Homes and Mixed Incentives: Canada’s New Underused Housing Tax
Posted in Real Estate

Canada has recently introduced legislation to implement an Underused Housing Tax (UHT).[1] (You can read our blog on this legislation here) The UHT will apply to non-resident, non-Canadian owners of residential property. As others have pointed out, the UHT contains some unusual policy choices.[2] For example, if the goal of the UHT is to increase housing supply, it should apply equally to Canadian and non-Canadian owners of homes in Canada. As drafted, it only applies to non-Canadians.

A further unusual policy choice in the UHT relates to the definition of “residential property,” which is defined to mean property in Canada that is either: 

  1. a detached house or similar building…;
  2. a part of a building that is a semi-detached house, rowhouse unit, residential condominium unit or other similar premises…; or
  3. a prescribed property.

The UHT would therefore seem to apply only to real property with a home on it. One taxpayer response might therefore be to demolish a home on a property to avoid being subject to the UHT. This might seem like an extreme measure, but in many urban markets in Canada much of the value of residential property is in the land rather than the building itself. Though it is important to note that, if the land were in Vancouver, the Vancouver Empty Home Tax would tax such an empty lot.

The UHT will operate alongside existing empty home taxes. For example in the City of Vancouver, a property could be subject to the City of Vancouver Empty Homes Tax and the B.C. Speculation and Vacancy Tax as well as the UHT. Consider, for example, a non-resident, non-Canadian owner of a $2,000,000, vacant single family home.

City of Vancouver Empty Home Tax

The City of Vancouver Empty Homes tax[3] applies at a rate of 3% of assessed value, and thus the EHT tax for 2022 would be $60,000.

Additional information about the City of Vancouver Empty Homes Tax can be found in our previous blog posts.

Provincial Speculation and Vacancy Tax

The B.C. Speculation and Vacancy Tax will apply at a rate of 2% of assessed value for non-residents, i.e. $40,000 for 2022.

Additional information about the B.C. Speculation and Vacancy Tax can be found in our previous blog posts here and here.  

Federal Underused Housing Tax

The UHT will apply at a rate of 1%, i.e. $20,000 for 2022.

In our example, the total tax burden each year will therefore be $120,000, or 6% of fair market value. No credit is given under the UHT for the tax payable under the City or Provincial taxes.

This tax burden can be avoided by renting the home to an arm’s length tenant on a month to month basis for at least 6 months each year. The UHT can be avoided simply by demolishing the home, although vacant residential lots in Vancouver are still subject to the City of Vancouver Empty Homes tax.


Policy makers need to carefully consider whether any new proposed tax meets its goals. The goal of increasing housing supply, particularly in Vancouver and Canada’s other major cities, is popular and likely sensible given rising prices. It is not at all clear, however, that the UHT (alone or in combination with existing taxes) does all that it could to achieve this goal. A tax which is designed to increase housing supply should not offer an equal incentive (tax exemption) to taxpayers who rent out housing stock (increasing supply) to those who remove it from the market for several years.

[1] December 15th, 2021, Bill C-8 received its first reading at the House of Commons. The Bill contains the Underused Housing Tax Act.

[2] C.D. Howe Institute, Legault, Brown “Four Design Flaws in Ottawa's Underutilized Housing Tax”, December 8, 2021 https://www.cdhowe.org/intelligence-memos/legault-brown-four-design-flaws-ottawas-underutilized-housing-tax

[3] VACANCY TAX BY-LAW NO. 11674, https://vancouver.ca/home-property-development/empty-homes-tax.aspx


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