Entity Setup
Entity Setup Considerations for Non-Resident Property Owners After Canada’s Budget 2025 Changes
Canada’s proposed elimination of the Underused Housing Tax (UHT) and its changes to non-resident dispositions of Canadian property demand a rethink in entity structure and tax exposure for foreign owners.
By NomadicTax Research Team • 5-8 min read • November 21, 2025
## Key Budget 2025 Proposals Impacting Property-Holding Entities
Two of the major proposals affecting non-residents and property ownership structures are:
- **Elimination of the Underused Housing Tax (UHT)** as of the 2025 calendar year—meaning **no UHT payable and no returns required** for UHT from 2025 onward. However, reporting and filings still apply for the 2022-2024 calendar years. ([budget.canada.ca](https://www.budget.canada.ca/2025/report-rapport/tm-mf-en.html?utm_source=openai))
- **Capital Gains Inclusion Rate Changes**: Effective **January 1, 2026**, individuals will see the inclusion rate rise from one-half to **two-thirds** on capital gains exceeding $250,000 annually. Corporations and most trusts will see all capital gains included at this higher rate. ([canada.ca](https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2025/update-cra-administration-proposed-capital-gains-taxation-changes.html?utm_source=openai))
## Impacts on Entity Structures & Ownership
- **Holding Real Property via Corporations or Trusts**: The increase in inclusion rate after 2026 means that corporate structures or trusts holding Canadian property may face higher tax on disposition. Entities need to evaluate whether the benefit of reduced liability vs capital gains exposure shifts with the new rate.
- **Planning Before 2026**: Dispositions planned before January 1, 2026, will still be taxed under the 50% inclusion rate when applicable (if gains are under thresholds for individuals). Thus, non-resident owners or trustees might accelerate sales or restructuring before the 2026 implementation date.
- **Impact of Eliminating UHT**: For properties that were underused or vacant and owned by non-residents, the UHT removal reduces ongoing tax liability and compliance obligations. However, historical compliance for 2022-2024 remains. Also, entities benefitting from being non-residents must review whether other taxes (e.g. property tax, capital gains, withholding) maintain exposure.
## Example: Structuring Ownership
> Alex, a non-resident investor who holds several properties in Canada through an offshore corporation. Before UHT elimination, Alex’s properties were subject to 1% UHT annually. Now, starting 2025, no UHT is due. But when he sells in 2026, the capital gains inclusion rate on those dispositions—including gains over thresholds— jumps, increasing tax owed.
> If Alex instead transfers ownership before 2026 or sells earlier, he can lock in lower inclusion rates. But transfer or sale costs, foreign ownership rules, and treaty implications must be considered.
## Checklist for Entities & Non-Resident Owners
- Confirm **residency status** and whether treaty relief may reduce withholding or capital gains rates.
- Assess whether properties are taxable Canadian property under Income Tax Act definitions.
- Model gains and inclusion for both current (50%) and new (66.67%) rates to estimate $ impact.
- Plan sales, transfers, or desired structural changes **before January 1, 2026**, where beneficial.
## Conclusion
Canada’s recent Budget 2025 reshapes the tax environment for non-residents and entities with Canadian property holdings. The elimination of the UHT and changes to capital gains rates mean strategic planning is more essential than ever—especially around entity choice, timing of dispositions, and residency considerations. In many cases, proactive structuring (“before 2026”) will meaningfully reduce tax exposure.