The Canadian with US Vacation or Rental Property
By Bryant Andrus
Profile: The Canadian with US Vacation or Rental Property
TL;DR
- Canada’s November 4 budget proposed eliminating the Underused Housing Tax for 2025 and all later years.
- Obligations for 2022, 2023 and 2024 remain in force, and unfiled returns still carry penalties starting at $1,000 per year for individuals.
- On the US side nothing changed: FIRPTA generally still withholds 15% of the gross sale price, though a withholding certificate applied for by closing can reduce it.
If you’re a Canadian who owns a vacation home, condo, or rental property in the United States — or an American who owns residential property in Canada — November 4 brought news that directly affects anyone with Canadian property compliance obligations. Canada’s first Carney budget proposed eliminating the Underused Housing Tax going forward. But the fine print matters enormously.
Finance Minister Champagne’s ‘Canada Strong’ budget was the first under Ottawa’s new fall budget cycle, and at $78 billion in projected deficit it was ambitious in scale. For cross-border property owners, the single most significant announcement was the elimination of the Underused Housing Tax (UHT) effective for 2025 and all subsequent years.
What the UHT Repeal Actually Means
The UHT — a 1% annual tax on the value of vacant or underused Canadian residential property owned by non-resident, non-Canadians — has been a compliance nightmare since it took effect in January 2022. Thousands of cross-border families who own Canadian property were caught in its filing requirements, often owing no actual tax but still required to file annual returns with severe penalties for non-compliance.
The proposed repeal applies for 2025 and beyond. No UHT return would be required for 2025 or subsequent years. But — and this is critical — all obligations for 2022, 2023, and 2024 remain in full force. If you haven’t filed UHT returns for those years, you’re still exposed. Penalties start at $1,000 per year for individuals and $2,000 for corporations, escalating with each month of non-filing. The budget makes clear that penalties and interest for 2022–2024 still apply even as the tax is wound down.
FIRPTA: The US Side Hasn’t Changed
For Canadians owning US property, the UHT repeal changes nothing on the American side. The Foreign Investment in Real Property Tax Act (FIRPTA) still requires that buyers of US real estate from non-US persons withhold 15% of the gross sale price and remit it to the IRS. This withholding is calculated on the full sale price — not the gain — and can far exceed the actual tax owed. A Canadian selling a US vacation home for $500,000 generally faces $75,000 in FIRPTA withholding even if the gain is only $100,000. (The rate drops to 10% or 0% when the buyer will live in the home and the price is up to $1 million or $300,000.) A withholding certificate application (Form 8288-B), filed no later than closing, can reduce that to the estimated actual tax. Every Canadian selling US property should consider applying for one.
Ready to Talk?
Cross-border planning is time-sensitive and highly fact-specific. If any of the topics in this issue apply to your situation, we would welcome the conversation. State Bird Corp specializes in US–Canada cross-border tax, estate, and immigration planning for families and businesses on both sides of the border. Our team works with clients across the US and Canada — wherever your cross-border life takes you.
Sources
- https://budget.canada.ca/2025/home-accueil-en.html
- https://www.irs.gov/individuals/international-taxpayers/withholding-certificates
- https://www.parl.ca/legisinfo/en/bill/45-1/c-15
- https://www.bdo.ca/insights/2025-federal-budget/other-tax-measures
- https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html
- https://www.irs.gov/individuals/international-taxpayers/firpta-withholding
- https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/uhtn3/filing-return-paying-underused-housing-tax.html
Sincerely,
The State Bird Corp Team
State Bird Corp
P: (602) 641-5996 · E: Info@statebirdcorp.com · W: statebirdcorp.com
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State Bird Corp is a management and financial consulting firm. State Bird Corp is not an accounting, legal or investment advisory firm. Cross-border planning is highly fact-specific. The strategies and topics described are general in nature, and readers should consult qualified specialists before taking any action. Any recommendation, inferences, or other guidance contained herein is meant for educational or general purposes and should not be relayed upon as specific advice for any person or business. Consult your legal, tax, and investment advisor for specific recommendation to your situation.