Tax on Unproductive Use of Canadian Housing by Foreign Non-resident Owners
Budget 2021 proposes to introduce this new national 1% tax on the value of vacant or underused real estate owned by non-resident, non-Canadians. The tax would be levied annually beginning in 2022.
All owners of residential property in Canada, other than Canadian citizens or permanent residents of Canada, would be required to file an annual declaration for the prior calendar year in respect of each Canadian residential property they own, starting in 2023.
The requirement to file this declaration would apply irrespective of whether the owner is subject to tax in respect of the property for the year. The owner would be required to report information such as the property address, the property value and the owner’s interest in the property.
A claim exemption may be available, for instance, where a property is leased to one or more qualified tenants in relation to the owner for a minimum period in a calendar year. Where no exemption is available, the owner would be required to calculate the amount of tax owing and report and remit it to CRA by the filing due date.
Penalties and interest would also be applicable, and the assessment period would be unlimited.
In the coming months, the government will release a backgrounder to provide stakeholders with an opportunity to comment on further parameters of the proposed tax.
Digital Services Tax (DST)
Budget 2021 proposes to implement a DST. The tax is “intended to ensure that revenue earned by large businesses – foreign or domestic – from engagement with online users in Canada, including through the collection, processing and monetizing of data and content contributions from those users, is subject to Canadian tax”.
The DST would apply as of January 1, 2022. A 3% tax is proposed to be imposed on revenues generated from online marketplaces, social media, online advertising, and the sale or licensing of user data. The tax would only apply to businesses with global revenue of €750 million, and Canadian revenue of more than $20 million.
Written representations must be sent by June 18, 2021, to the Department of Finance Canada, Tax Policy Branch at: DST-TSN@canada.ca.
Enhancing Anti-Avoidance Provisions
Budget 2021 proposes measures implementing recommendations of the OECD’s “Base Erosion and Profit Shifting” project focusing on:
- restrictions on the deductibility of interest paid to non-arm’s length foreign entities to a fixed ratio of “tax EBIDTA” (earnings before interest, depreciation, tax and amortization), with exceptions for some CCPCs, and groups of Canadian entities whose aggregate net interest expense does not exceed $250,000; and
- hybrid mismatch arrangements which take advantage of differences in the income tax treatment in different countries, such as situations where the same expense can be deducted in multiple countries, or a deduction is available in one country which is not taxable, within a reasonable period of time, in the other.
These measures will be the subject of draft legislation to be released for consultation in the summer, and would not apply before July 1, 2022.
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