The Underused Housing Tax (UHT)
UPDATE #2 - November 25, 2023
The most recent Fall Economic Statement (2023) from the Canadian government has put forward a number of recommended changes to the Underused Housing Tax (UHT) that Tracey, and the CPA, have been suggesting since the UHT was announced. They include:
Eliminating the UHT filing requirement for a Canadian corporatiom with less than 10% of its votes or equity value owned by foreign corporations or individuals.
Eliminate the UHT filing requirement for a partnership or trust whose partners, or beneficiaries, are exclusively Canadian.
Reducing the minimum non-filing penalties from $5,000 for individuals and $10-000 for non-individuals to $1,000 and $2,000, respectively.
Introducing a new exemption for residential properties held as a place of residence or lodging for employees provided the residence is NOT in a metropolitan area with 30,000 or more residents.
Providing that unitized (condominiumized) apartment buildings are not “Residential Property” for UHT purposes.
Ensuring that an individual or spousal unit can claim the UHT “Vacation Property” exemption for only ONE residential property per calendar year.
Most of these changes would apply to 2023 and subsequent calendar years. However, recommended changes to penalties applies to 2022 and single claim of vacation property is effective for 2024 and onward.
For more information on the Underused Housing Tax (UHT), please read our blog post below or reach out to any of our team, we’d be glad to address your questions.
UPDATE - October 31, 2023
The Minister of National Revenue announces that owners affected by the Underused Housing Tax (UHT) will have until April 30, 2024, to file their returns for the 2022 calendar year without being charged penalties or interest.
This transitional relief will allow more affected owners to meet their obligations under this new law, which is part of the Government’s long-term plan to increase available housing for Canadians. Consequently, the Canada Revenue Agency will waive the application of penalties and interest for any late-filed UHT returns and for any late-paid UHT payable for the 2022 calendar year, provided the return is filed and the UHT is paid by April 30, 2024.
For more on the extension, please visit the Government of Canada website or reach out to Tracey at tracey@digitaltaxcpa.ca. For more on the UHT, please read our original post below.
Are you a Canadian citizen or resident that owned your home or cottage in a trust or corporation? Are you the trustee of a trust that owned a Residential Property? If yes to either of these two questions, did you already file form UHT-2900 E, Underused Housing Tax Return and Election Form for your 2022 tax year (“UHT Return”)? If no, this blog post is relevant to you.
The Underused Housing Tax is an annual federal 1% tax on ownership of vacant or underused housing in Canada. The tax took effect January 1, 2022, and generally applies to foreign national owners of housing in Canada. HOWEVER, in some situations, the tax also applies to Canadian owners like certain partners, trustees, and corporations. There are many useful articles that walk through the new requirements pursuant to the Underused Housing Tax Act (“the Act”). Those wanting full details are encouraged to do a quick web search or check out Underused Housing Tax on the useful Canada Revenue Agency website.
Why is filing important? The penalty for non-filing the UHT Return is the greater of $5,000 for individuals ($10,000 for corporations) and 5% of the tax otherwise owing, plus there is a 3% penalty for each complete month that the return is late. This penalty applies even if no tax is payable, for example, if one of the UHT Exemptions was met.
This blog highlights two common situations where we felt the filing may be easily missed.
1) Trustees of a trust holding Residential Property are required to file
A trustee of a trust owning a “Residential Property”, as defined under the Act, is required to file the UHT Return.
Ownership for this purpose is broad and includes the person that is identified as an owner under a land registration or similar system. A trust created under common law (nor partnership for that matter) cannot hold legal title to a residential property in Canada and therefore cannot be the owner of the property. Instead, a trustee of the trust that holds legal title to the Residential Property would have the filing requirement. For example, if there are four trustees of a family trust and each of these trustees is listed on the legal title, then there would be four owners, and each are required to file a separate UHT return for the same property. If the returns were not filed and the property’s taxable value was $1 million, as of December 31, 2023, the late filing penalty would be $20,000 ($5,000 penalty multiplied by 4 returns that were not filed).
If the beneficiaries of the trust are each Canadians citizens or residents, there would not be any tax owing, but the non-filing penalties would still apply.
2) Ownership of Residential Property in a corporation required to file
A common estate planning strategy is to incorporate a Canadian corporation to hold the legal title to a Residential Property. Further, some business owners may have set up a corporation to purchase a Residential Property for tax planning reasons.
A corporation would be considered to be the owner where it is identified as an owner under a land registration or similar system. In these circumstances, the corporation is required to file the UHT Return. If the UHT return for 2022 is not filed before October 31, 2023, the corporation would be subject to a minimum penalty of $10,000.
It is not too late
These rules are new and surprisingly complex given their intended purpose. If you are in a situation like either of those summarized above, please reach out to our team as soon as possible so we can ensure any required UHT Returns are filed before October 31, 2023.
We note that the UHT Return is an annual filing requirement so making sure as your advisor we are aware of the ownership of properties is important part of the ongoing tax compliance process.
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