International Trade Committee on June 8th, 2023

[The Chair (Hon. Judy A. Sgro (Humber River—Black Creek, Lib.)), Liberal, Judy Sgro]

I call this meeting to order.

This is meeting number 70 of the Standing Committee on International Trade.

Today's meeting is taking place in a hybrid format, pursuant to the House order of June 23, 2022. Therefore, members are attending in person in the room and remotely using the Zoom application.

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Pursuant to Standing Order 108(2) and the motion adopted by the committee on Monday, May 29, 2023, the committee is resuming its study of the impacts of the underused housing tax on Canadian border communities.

We have with us today from the Department of Finance, Amanda Riddell, director of real property and financial institutions in the sales tax division of the tax policy branch, and Robert Ives, expert adviser in the sales tax division of the tax policy branch. From the Department of Foreign Affairs, Trade and Development, we have Mark Allen, executive director of the United States branch.

Welcome, all.

We will start with opening remarks, of course, and then start with rounds of questions.

Ms. Riddell or Mr. Ives, would you like to start, please?

[Amanda Riddell, Director, Real Property and Financial Institutions, Sales Tax Division, Tax Policy Branch, Department of Finance]

Thank you, Chair. Thank you for having us.

Good afternoon, my name is Amanda Riddell. I am the director of the real property and financial institutions section of the sales tax and excise division of the tax policy branch at Finance Canada.

I'm here today to provide the committee with a brief overview of the federal underused housing tax, or UHT, which my section was tasked with developing by the government.

I'm joined by my Finance Canada colleague, Robert Ives, as well as my colleague from Global Affairs Canada, who can speak to any implications that the tax might have on Canada-U.S. relations.

The UHT is an annual 1% tax that applies on the value of generally non-resident, non-Canadian-owned residential property in Canada that is regarded as vacant or underused. The measure originated from a 2019 election platform commitment of the government.

In budget 2021, the government announced its intention to implement the UHT, effective beginning in the 2022 calendar year. Budget 2021 indicated that the tax is intended to do two things. First, it's to help ensure that foreign, non-resident owners of underused Canadian housing pay their fair share of Canadian tax, with the revenues helping to support the government's investments to make housing more affordable for Canadians. Second, it's to help ensure that housing in Canada is available for the use of Canadians.

Budget 2021 also announced that the government would be releasing a consultation paper to provide stakeholders with an opportunity to comment on the parameters of the proposed tax. Later that year, a detailed backgrounder on the proposed parameters for the UHT was released. It was on August 6, for a six-week consultation period. The consultation also requested views on whether special rules should be established in respect of residential properties located in smaller resort and tourism communities, and if so, what those rules should be.

There were 41 submissions received during the six-week consultation period. Twenty-five of those submissions were made by individuals, and 16 were made by organizations.

The legislation to enact the tax was tabled in December 2021 and received royal assent in June 2022.

The UHT applies on an annual calendar year basis to the person who is the legal owner of a “residential property” as defined in the act, on December 31 of that calendar year. Certain owners are excluded from the scope of the UHT, including Canadian citizens and permanent residents of Canada who own their residential property directly in their own right. All other owners are required to file an annual UHT return in respect of each residential property they own.

In this return, an owner may be eligible, however, to claim an exemption from the tax. For example, it can be based on the use of the property, such as where it is being rented out on a long-term basis, or based on the type of owner, such as when the owner is a corporation that is 90% or more Canadian-owned.

The inaugural UHT returns for the 2022 calendar year were due on April 30, 2023. However, the tax had received very little attention until earlier this year, when the CRA released the UHT form and UHT technical guidance. Once those materials were published, it became apparent that there was a general lack of awareness regarding the tax and some confusion about what types of properties were subject to the filing requirement.

On March 27, the CRA decided to waive penalties and interest—which is effectively like extending the filing deadline—for six months, until October 31, 2023.

As a federal tax, the UHT is intended to apply broadly and consistently across Canada. The one exception to this is for vacation homes in certain areas of the country. To qualify for the vacation property exemption, a residential property must meet both a location and a use requirement. The property must be in an area of Canada that is generally considered rural. More technically, the rules are that the property must be located in an area outside of a census metropolitan area or a census agglomeration having 30,000 or more residents, or it could be included in the rural parts of a CMA or census agglomeration having 30,000 or more residents.

The property must also be used by its owner or the owner's spouse or common-law partner for at least 28 days in the calendar year. These days do not need to be consecutive.

When administrative data from the 2022 tax filings becomes available, the department will have a much better sense of foreign ownership rates and property use by foreign owners, which will be of great benefit for future policy analysis.

We look forward to your questions.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much. That was very informative.

We'll go to Mr. Baldinelli for six minutes, please.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

Thank you, Madam Chair.

I'd like to thank the officials for being with us this afternoon, for your brief outline and the consultation you provided to us prior to our travel to Washington, where we met with several members of Congress and representatives.

As you probably know, I come from an area that straddles the Niagara River and borders on Lake Erie. There are a lot of summer properties that are owned by Americans in that area.

If you stay, you'll have an opportunity to listen to some of the residents who are appearing later on this afternoon. Some of the properties have been owned since 1905.

In fact, in Crystal Beach, there's a facility called the Buffalo Canoe Club, which was established in 1882 and moved to Fort Erie in 1891. The facility still exists and operates, with not only American residents but Canadian residents as well.

We've had American visitors for over a century, people who have owned properties for over a century. Those American residents are part of our social fabric. To those who live in our community, it's not considered an international border; it's a river that separates two friends.

I was first contacted by a gentleman who will be making one of the presentations later on today. He wrote to me in February 2022. I wrote to the minister in March 2022 seeking clarification and some guidance with regard to the changes and how this would operate with seasonal property owners, and we're still looking for that kind of clarification, because there are anomalies. Some people will be exempt. You'll find out later on this afternoon that I have one resident who has a home that is taxed, while 450 metres away, they're exempt, so the situation doesn't make sense.

I think there's a solution to the problem that exists, and we can find a common ground with regard to the regulations and how we can word those regulations. We can find a common ground that will solve this issue.

Going back, you talked about consultation and the consultation document of 41 submissions. Were any of those from people in our community?

[Amanda Riddell]

I'm going to pass this to Rob Ives, because he is very familiar with the consultations and all the submissions received.

[Robert Ives, Expert Advisor, Sales Tax Division, Tax Policy Branch, Department of Finance]

Of the 41 submissions, there wasn't a single one from the Niagara region.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

How did the government go about seeking input? Again, we're talking about American residents. They're there for the summer, but during the winter months they're in Buffalo, so how would they have even known this tax was being considered?

[Robert Ives]

The tax was announced in budget 2021, in the budget documents. There was a mention in the budget documents that a consultation would be taking place very shortly thereafter. The consultation paper was released on August 6, 2021. The Department of Finance uses social media to get the word out: Twitter, Facebook, LinkedIn and those sorts of sites, and the consultation was open for a six-week period.

To your question, there was nothing from the Niagara region, unfortunately.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

There was a lack of general awareness, I think, and you mentioned, Ms. Riddell, that it was almost this year before it was announced. I've been working with a representative from the United States, Congressman Higgins, to bring forward this issue for over a year now, and there seem to still be some concerns.

Mr. Allen, you will know this was raised by the Canadian government on May 5 with the United States trade representative. In fact, on May 25, Congressman Higgins and 13 individuals wrote to Secretary Blinken regarding the matter. It's becoming a trade impediment to us, potentially, with regard to the relationship, and I don't think we want that. The relationships we have, like I said, are so close that we consider our area a binational region, not two countries.

Based on consultation and input from Americans, is the government looking at making changes to address some of the concerns those people have?

[Amanda Riddell]

The UHT is a brand new tax. We were hoping to have a consultation period and feedback. We received a fairly limited amount of feedback at the time.

As I was saying, once the UHT form and the guidance came out, it suddenly hit people's radars, and we've received quite a bit of feedback since that time. I can confirm that the department is carefully considering all of that feedback.

[The Chair, Liberal, Judy Sgro]

Fifty-two seconds.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

I forgot what my other question was going to be with regard to that.

If you have a question, I will ask mine—

[Marilyn Gladu, Conservative, Sarnia—Lambton, ON]

I have heard a lot of concerns from people who are trying to go through this that they have had to have their accountants do the tax filing, and it has cost about $800, which is more than most people spend doing their entire tax.

Why is it so complicated, and how could we fix that?

[Amanda Riddell]

I don't know how many of you are aware, but there are similar types of taxes that are imposed at the municipal level, and they are relatively straightforward. You have your roll number. You just click a button and you can do it in a matter of seconds.

That's largely thanks to the fact that municipalities have access to property ownership data and can reach out directly to property owners. The federal government doesn't have that same luxury, so in the form we have it's a bit more complex in the sense that we're trying to gather a bit more data.

The form is not that complex, though. It asks for some basic tombstone data, a bit of data about the property, and then you check a box if you're entitled to an exemption.

We have heard that accountant fees are high, between $500 and $1,000. I can't speculate on whether that will change, but that does seem high to me.

[The Chair, Liberal, Judy Sgro]

I'm sorry. You're way over. I was anxious to hear the answer though, as was the rest of the committee.

Mr. Virani is next, for six minutes, please.

[Arif Virani, Liberal, Parkdale—High Park, ON]

Thank you.

Thank you very much for being here.

I'm going to go a little fast, because there's a lot of ground to cover, but just tell me yes or no, if I have this correct.

Ms. Riddell, this tax applies to non-Canadian citizens, non-Canadian permanent residents.

Is that correct?

[Amanda Riddell]

It applies to properties that are owned....

Rob, you can probably give a more comprehensive answer.

[Robert Ives]

It applies to non-resident non-Canadians as well as a number of entities—Canadian corporations that are owned by foreign persons and foreign corporations.

[Arif Virani, Liberal, Parkdale—High Park, ON]

Good, but in the norm it doesn't apply to Canadian residents and Canadian citizens.

[Robert Ives]

That's correct.

[Arif Virani, Liberal, Parkdale—High Park, ON]

Okay.

It was addressed, you mentioned, to the objectives at the outset, Ms. Riddell. They were outlined in the budget or in the platform, and they talk about addressing the shortage of housing and how Canadian housing should ideally be targeted at Canadians.

Is that one of the objectives of the tax?

[Amanda Riddell]

Yes. The two main objectives of the tax.... I will read them again.

It's to help ensure that foreign non-resident owners of underused Canadian housing pay their fair share of Canadian tax, with the revenues going to help support the government's investments to make housing more affordable, but also to help ensure that housing is made available for the use of Canadians.

[Arif Virani, Liberal, Parkdale—High Park, ON]

You talked about some of the exemptions, but there are many exemptions. What I understand is that it doesn't apply to a property that is not livable year-round. The UHT is not applicable to a place in ski country that's not winterized, or a cottage that's not winterized.

Is that correct?

[Amanda Riddell]

That's right. There was a lot of consideration given to making sure the tax didn't apply in situations in which it was unfair, so there are a series of exemptions.

I can go through them all, but generally speaking the categories are that there are exemptions based on the occupant of the residential property if it's your primary place of residence, for example.

There are exemptions based on the location and use, such as the vacation exemption, which we were talking about.

There are exemptions based on the property conditions, so if it's a new construction, or it's not suitable to live in year-round, or it's uninhabitable because of a disaster or renovations, for example.

Then, of course, there are exemptions based on the type of owner, so even though you have to file, you're entitled to an exemption if you're a Canadian corporation that is 90% or more Canadian owned, etc.

[Arif Virani, Liberal, Parkdale—High Park, ON]

It would be helpful for the committee if you tabled the full list of all the exemptions. Could you provide that to us in writing, the full list of all the exemptions?