New Canadian Tax Regulations for American Property Owners

Mark Congdon, Founder & President

Owning property in Canada has been a challenge for American citizens for several years now.  While border restrictions implemented during the COVID-19 pandemic have largely been eliminated, a new burden has been placed upon non-resident property owners.

Effective January 1st 2022, a tax is being imposed on vacant or underused properties situated in Canada. Although there are numerous exemptions for paying this tax, there are no exemptions for filing the Underused Housing Tax Form (UHTR) if you are not a Canadian Citizen or legal resident.  You must file this form to elect an exemption.

The initial filing – originally due by April 30th 2023 but now extended to October 30th – will be the hardest to complete for most Americans.  The difficulty lies in the need to acquire the equivalent of a Canadian Social Security number in order to file the return.   Canadians have Social Insurance Numbers (SINs) and non-residents are given Individual Tax Numbers (ITNs).   Note this number is also necessary to sell your property, or even transfer to a spouse or family member at your death.  This is when the Canadian government will be auditing for compliance of UHTR filings, and assess a penalty of at least $5,000 for every year a return was not filed.   Please be aware they have also stated that non-filers that would have been able to elect exemptions will not be allowed to do so retroactively.

Exemptions are numerous, especially if your property is located in a postal code deemed a “prescribed area” which typically is seasonal or recreational.   Instead of requiring 180 days consecutive use, only 28 total are needed for exemption.  There are other exemptions for not having public access year-round or a non-winterized cottage.  The important thing is to elect the proper exemption and file the form!   As always, it is recommended to get professional help if you are at all unsure of your responsibilities.  There are national Canadian tax and accounting firms that can help in any province.  I personally engaged one named MNP – they charged me $1,000 Canadian to acquire the ITN number and file the initial return.  They even suggested that I could use it as a template and file on my own in coming years if I felt comfortable doing so.  I purchased peace of mind in return for their fee.

I’d like to take this opportunity to remind property owners who keep a Canadian bank account for taxes, upkeep, and improvements that you must file FINCEN form 114 if you have an interest in a foreign bank account that had a balance of $10,000 or more any time in the previous year.  The filing deadline always coincides with the IRS filing deadline.  You can file online by going to www.fincen.gov and scrolling down to E-Filing.  FINCEN – the Financial Crimes Enforcement Network – was established in 1990 and oversees all foreign bank account reporting (FBAR) required filings for the federal government.  As always, penalties apply for failure to comply, and ignorance of the law is not a forgiven excuse.  All this is more work than spring cleanup at the cottage after a hard winter!  Enjoy the summer.

Mark Congdon is the Founder of Horizon Financial, a comprehensive wealth management and planning firm in Rochester, N.Y. The firm's members pride themselves on guiding clients "anywhere money touches life." Whether you're looking for guidance on investments, tax planning, retirement strategies, or estate planning, our team of experienced professionals is here to help you achieve your financial goals. Take the first step towards a secure financial future by contacting us today for a free consultation. Schedule your free consultation by clicking here or give us a call at (585) 334-3600 to begin your journey to financial success.