Rental, Investment & Tax
Vacant Home Tax and Underused Housing Tax
A vacant home tax is a municipal charge on vacant or empty homes, while the federal Underused Housing Tax targets foreign owners. Here's how both work.
A vacant home tax is an annual charge a municipality or province imposes on residential property left empty for most of the year, and the federal Underused Housing Tax is a separate levy aimed mainly at non-resident and corporate owners. Most Canadians who live in their own home never pay either one, but you may still have to file a return, and missing paperwork is the mistake that costs owners the most. Here is what each tax is, who must file, and how an empty property affects your mortgage qualification.
Three taxes that share a nickname
Owners lump these together, but they come from different levels of government and target different people.
- Municipal vacant home taxes. Cities such as Toronto and Vancouver require owners to declare, every year, whether a property was occupied. If a home sits empty longer than the city threshold, commonly six months in a calendar year, the city charges tax based on the property's assessed value. Rates are set by council and change over time, so confirm the current rate with your municipality.
- Provincial speculation and vacancy taxes. British Columbia levies a speculation and vacancy tax in designated areas, with different rates depending on owner type, plus an annual declaration.
- The federal Underused Housing Tax (UHT). A nationwide annual tax on residential property that is vacant or underused, applying only to owners the law does not classify as excluded owners.
The federal Underused Housing Tax: who actually pays
The UHT is not aimed at the typical homeowner. The legislation starts by defining excluded owners, and excluded owners have no filing obligation at all. Individuals who are Canadian citizens or permanent residents and hold title in their own name generally fall into that group.
If you are not an excluded owner, a non-resident owner, or a Canadian holding property through a corporation, partnership, or trust, you must file a UHT return for every residential property you own, even when an exemption means no tax is payable. This catches people by surprise: a Canadian who holds a rental inside a holding company can have a filing requirement the neighbour down the street does not.
Where the tax applies, it is calculated as a percentage of the property value, generally the greater of its assessed value and its most recent sale price. Confirm the current rate and calculation basis on the CRA website. Filing penalties are significant, and the minimum penalty is higher for corporations than for individuals.
Exemptions that commonly apply
- Qualifying occupancy. The dwelling was occupied by you or a permitted occupant for at least the minimum number of days in the calendar year. The threshold depends on the category of owner and occupant, so confirm the current test with the CRA.
- Not suitable for year-round use, such as an uninsulated seasonal cottage.
- Property under construction or major renovation, within the limits the rules allow.
- Newly acquired property, where you owned it for less than the required part of the year, or property held in an estate after an owner's death.
Municipal vacant home taxes: declare even when you owe nothing
In a city with a vacant home tax, the annual declaration is required whether or not the home was empty. You report the occupancy status every year, and you do it even if you live there full time. Miss the deadline and the city will typically treat the property as vacant, bill the tax, and add a penalty. That is the biggest trap in the system: owners who genuinely occupy their home get charged because a form was never submitted.
Toronto's program and Vancouver's Empty Homes Tax both work on a declare-or-be-taxed model, with online filing and reminders. If your property is between tenants, under renovation, or held for a family member, read the exemption list before assuming you are clear.
How the taxes compare
| Tax | Who levies it | Who it targets | How it is calculated |
|---|---|---|---|
| Vacant home tax | Some municipalities, such as Toronto and Vancouver | Any owner of a home left empty beyond the city's threshold | Percentage of assessed value; rates set by council |
| Speculation and vacancy tax | British Columbia | Owners in designated areas, with higher rates for foreign owners | Based on assessed value and owner type; annual declaration |
| Underused Housing Tax | Government of Canada (CRA) | Owners who are not excluded owners, often non-residents, corporations, and trusts | Percentage of property value, subject to exemptions |
| Non-resident speculation tax | Ontario and some other provinces | Foreign buyers at the point of purchase | Additional land transfer tax on the purchase price |
What an empty property does to your mortgage qualification
If you own a property you do not live in, these levies are part of your carrying cost, and carrying costs are what lenders measure. Property taxes feed into your GDS and TDS ratios, and a vacant home that produces no rent cannot offset those costs the way an occupied rental can. For how lenders treat rent, see counting rental income for mortgage qualification.
Under OSFI Guideline B-20, federally regulated lenders apply the mortgage stress test to most new mortgages: generally the higher of your contract rate plus two percentage points or a published qualifying-rate floor. Confirm the current floor with OSFI or your lender. Because mortgage rates move with the Bank of Canada policy rate and lender prime rates, your qualifying rate can shift between pre-approval and closing. A vacant property with no rental offset is harder to qualify for than the same property rented out, and the gap usually shows up in the TDS ratio. Run your numbers with a mortgage affordability calculator first.
If your down payment is under 20%, your mortgage is typically insured by CMHC or another default insurer and the premium is usually added to your balance, one more carrying cost to weigh. Non-resident buyers face a narrower lending market with fewer lenders and lower loan-to-value limits; see the non-resident speculation tax in Ontario for the purchase-side tax picture.
How to avoid paying, legitimately
- Occupy the home. A property you live in as your principal residence is normally exempt from a municipal vacancy tax, though you still have to declare it, and is usually an exempt dwelling for UHT purposes when the occupancy test is met.
- Rent it out. Vacancy taxes exist to push empty units onto the market, so tenancy for the required period usually removes the charge. Keep leases and records.
- File every declaration and return on time, even when no tax is due. The UHT return is generally due at the end of April for the previous calendar year, while municipal declarations run on their own calendar.
- Document the exemption you rely on. Medical leave, an estate, renovations, and transfers between family members can all qualify. Keep receipts, permits, and correspondence.
- Review your ownership structure. Holding a home in a corporation or trust can create a filing obligation that would not exist if you owned it personally. Speak with a tax professional.
When you eventually sell, the tax treatment of the sale is a separate question. See the principal residence exemption and capital gains on a second property.
Finally, treat vacancy taxes as a budget line from day one, alongside insurance, maintenance, and utilities. They belong in the true cost of owning a home in Canada, and planning for them up front is far cheaper than discovering a deemed-vacant assessment after the deadline.
Frequently asked questions
Do I have to pay a vacant home tax on my own home?
No. A home you live in as your principal residence is normally exempt from a municipal vacant home tax, and most Canadian citizens and permanent residents who own in their own name are excluded from the federal Underused Housing Tax. The catch is paperwork: in cities with a vacant home tax you still submit the annual declaration, and if you skip it the city can treat the home as vacant, bill the tax, and add a penalty.
What is the difference between a vacant home tax and the Underused Housing Tax?
A vacant home tax is municipal, or provincial in British Columbia, and applies to any owner whose property sits empty beyond the local threshold. The federal Underused Housing Tax applies to owners who are not excluded owners, typically non-residents, corporations, partnerships, and trusts, and requires an annual return even when an exemption means no tax is owed. Both can apply to the same property at once.
Do I need to file a UHT return if I do not owe any tax?
Yes, if you are not an excluded owner. The obligation is to file, not just to pay, so a Canadian who owns property through a corporation, partnership, or trust may have to submit a return for every residential property each year and claim an exemption on it. Penalties for not filing are significant and start higher for corporations than for individuals, so confirm the current amounts with the CRA.
Does the vacant home tax affect my mortgage application?
Indirectly. Lenders assess property taxes and other carrying costs through GDS and TDS ratios, and a vacant property that produces no rent cannot offset those costs the way an occupied rental can. The stress test also pushes lenders to qualify you at a higher rate, so empty-property carrying costs can reduce how much you can borrow. Confirm current rules with your lender.