Entity Setup
Canadian Employers: Navigating the Elimination of the Underused Housing Tax and Luxury Tax Changes
Budget 2025 brings significant shifts for businesses and property owners as Canada phases out the Underused Housing Tax and ends luxury tax on aircraft and vessels—what companies need to know now.
By NomadicTax Research Team • 5-8 min read • November 24, 2025
Canada’s **Budget 2025**, introduced in early November, contains important proposed changes affecting compliance, entity strategy, and property ownership. If you’re an employer, corporation, or foreign investment entity, these shifts could change your risk profile—and your tax planning. ([budget.canada.ca](https://www.budget.canada.ca/2025/report-rapport/chap5-en.html?utm_source=openai))
## Key Policy Changes for Property-related Entities
### Underused Housing Tax (UHT) Eliminated
- Effective **calendar year 2025**, the UHT will be **eliminated**. This means owners (including non-resident and foreign owners) no longer need to file returns or pay tax under UHT for 2025 or later. Requirements remain for 2022-2024. ([budget.canada.ca](https://www.budget.canada.ca/2025/report-rapport/chap5-en.html?utm_source=openai))
### Luxury Tax Removed for Aircraft & Vessels
- Canada proposes **ending its Luxury Tax** on sales, importations, and leases of aircraft and vessels as of the day after Budget Day (i.e., luxury tax-related obligations on these items cease starting mid-November 2025). ([budget.canada.ca](https://www.budget.canada.ca/2025/report-rapport/chap5-en.html?utm_source=openai))
## Other Notable Measures Affecting Entities
- Introduction of a new **reverse charge mechanism** for GST/HST to counter carousel fraud, initially targeting the telecommunications sector. Entities will need to adjust invoicing and reporting. ([budget.canada.ca](https://www.budget.canada.ca/2025/report-rapport/chap5-en.html?utm_source=openai))
- Reform of transfer pricing rules and limits on deferred refundable tax income through tiered corporate structures. Corporate groups should review their fiscal year ends and ownership of foreign affiliates. ([budget.canada.ca](https://www.budget.canada.ca/2025/report-rapport/chap5-en.html?utm_source=openai))
## What Employers and Entities Should Do Now
- Review upcoming filings to ensure you’re no longer registering for UHT or calculating luxury taxes for candidate items. Cost structures and contracts should be revisited. **Effective immediately for post-2025 calendar years.** ([budget.canada.ca](https://www.budget.canada.ca/2025/report-rapport/chap5-en.html?utm_source=openai))
- For international and Canadian insurers with foreign affiliates, verify that income from assets supporting Canadian insurance risks will be included in Canadian taxing jurisdiction—clarify in financial statements. ([budget.canada.ca](https://www.budget.canada.ca/2025/report-rapport/chap5-en.html?utm_source=openai))
- Entities vulnerable to GST/HST carousel fraud (especially in telecommunication) need to build systems to support reverse charge reporting where applicable. Seek early clarity on how regulations will roll out. ([budget.canada.ca](https://www.budget.canada.ca/2025/report-rapport/chap5-en.html?utm_source=openai))
## Hypothetical Case
Imagine a U.S.-based aircraft company leasing to Canadian operators: after Budget Day, luxury tax on such aircraft will be removed; owners no longer subject to these taxes. But beware that all past obligations up to 2024 persist. Also, if parts or services for the aircraft are imported or provided across provinces, GST/HST issues could arise under the new reverse charge scheme. Entities must recalculate cost basis and margins accordingly.
## Compliance & Timing Tips
- Because some proposed measures (e.g. transfer pricing reforms, GST reverse charge) are still under development, monitor legislative updates and regulatory guidance through 2026. ([budget.canada.ca](https://www.budget.canada.ca/2025/report-rapport/chap5-en.html?utm_source=openai))
- Update internal policy documents and compliance calendar to reflect eliminated reporting obligations (UHT) and the end of luxury tax rules for relevant items. Delay may reduce audit risk.
- Discuss with tax advisors whether setting or changing fiscal year-ends or shifting ownership might yield benefits under new rules.
## Summary
Budget 2025 in Canada delivers both relief and complexity. While homeowners and foreign owners avoid UHT, businesses dealing with luxury assets or operating international operations face new responsibilities. Proper entity structure, proactive planning, and compliance readiness are now more critical than ever.
Category: **Entity Setup**