On March 27, 2023 Canada Revenue Agency (“CRA”) granted an extension of time to file UHT returns to October 31, 2023.
The CRA official announcement (see https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2023/underused-housing-tax-penalties-and-interest-waived.html) describes this as a “waiver of penalties and interest” for returns filed after the April 30, 2023 filing deadline as long as the returns are filed, and any tax owing is paid, by October 31, 2023. However, the practical reality is that many issues created by the legislation are difficult to interpret, and CRA requires more time to analyze these issues, develop their administrative policies, and publish those policies so that affected owners can apply CRA’s policies to their own situation and file their UHT return(s) accurately.
As a result of this extension being granted by CRA, our recommendations are:
Please contact your D&H Group LLP advisor if you have any questions.
FEBRUARY 14, 2023
Some Canadian individuals and corporations, as well as non-residents of Canada, will be required to file a new annual tax return by April 30 and either claim an exemption or pay a tax of 1% on the value of “underused housing” in Canada which they own.
This new federal tax legislation applies in addition to other vacancy and speculation taxes introduced recently at the provincial and municipal levels.
Affected owners of residential property in Canada only have a short time to meet this onerous new tax return filing requirement.
The tax return has six pages of information to be disclosed, and was only released to the public in early February of 2023. The April 30, 2023 filing deadline for the 2022 tax year means that we have very little time before the due date to gather all the information and prepare the return.
This means that owners subject to the filing requirement need to determine the eligibility for a filing exemption and a tax exemption in respect of each residential property, and file a tax return in respect of each affected property where a tax return filing exemption does not apply.
It is critically important that affected owners start gathering required details immediately to complete the new UHT return.
If you own multiple residential properties, you must ensure to file a separate UHT return for each property, as required, or you can be assessed substantial penalties.
The new Underused Housing Tax Act (the “UHTA”) and its regulations implement a national annual 1% tax on the value of residential property that is vacant or underused (the “Underused Housing Tax” or “UHT”).
The UHT rules categorize owners of residential property in Canada in two groups:
To avoid penalties and claim any available exemptions, affected owners must file a separate UHT return (and, if a tax exemption does not apply, pay the UHT) by April 30, 2023 for each qualifying residential property they owned on December 31, 2022.
Canadian citizens and permanent residents of Canada are not subject to the tax, but many Canadian residential property owners (including corporations wholly owned by Canadian citizens, nominee owners who hold title for other Canadian citizens, partners of partnerships, and trustees of trusts) need to file a return even if no tax is payable.
The penalties for failure to file a UHT return are very onerous – with the minimum penalty being as high as $10,000 per property per year – even if the property is exempt from the tax. If you own a residential property in a corporation, trust, or partnership, you will need to file a UHT return for that residential property to avoid penalties even if that property is exempt from the tax.
An owner (other than an “excluded owner”) of one or more residential properties in Canada on December 31 of a calendar year is required to file a return for each residential property for the year.
Generally speaking, you are an “owner” of a residential property where:
What is a residential property?
The UHT applies to “residential property” in Canada. Generally speaking, “residential property” is defined as property that is either of the following:
A “dwelling unit” is a residential unit that contains:
Generally speaking, a “residential unit” is a single self-contained set of rooms in a building or part of a building that is distinguished from any other such set of rooms in the building or part and that is characteristic of, and suitable as, a residence.
A building that has four or more residential units under a single land title registration is not a “residential property”, and the tax return filing requirement does not apply to such a property. However, if the property is a strata property (i.e. each unit is a separate strata lot with a separate legal title) then each property is a separate residential unit, and a separate UHT return is required for each property unless the owner is an “excluded owner”.
UHT Return Filing
A prescribed return (Form UHT-2900, Underused Housing Tax Return and Election Form; the “UHT return”) containing certain required information must be filed with the Canada Revenue Agency (“CRA”) for 2022 on or before April 30, 2023 unless the owner of the property is an “excluded owner” (see next section).
Important: If you own more than one residential property in Canada, you have to file a separate return for each property if you are not an “excluded owner” in respect of the property.
The UHT return is six pages of data to be entered, and three pages of instructions, for a total of nine pages. There are numerous questions about the property, and the nature of the ownership of the property, which are required to be completed. For example, the property identification number (used in the provincial land title system) and the property tax or assessment roll number (from your property tax assessment) must be entered on the form. Unless you have this information (perhaps in the purchase documents from when you acquired the property), a title search may be necessary. If the property is in BC, you can use https://www.bcassessment.ca/ to find the Parcel Identifier (the “PID”, which is nine digits; e.g. 123-456-789) and the assessment roll number (the number of digits depends on the location of the property).
Owners must calculate the amount of tax owing for each residential property that does not qualify for an exemption and make a payment of the tax by April 30, 2023.
Excluded Owners – Exempt from Filing a Return and Paying the Tax
An “excluded owner” of a residential property is not liable to pay the UHT or required to file an annual UHT return. An excluded owner includes, but is not limited to, a person that is on December 31 of the calendar year:
If you are an individual who is a Canadian citizen or “permanent resident” of Canada (under the Immigration and Refugee Protection Act of Canada) you are an “excluded owner” and are exempt from the tax, and from the tax return filing requirement, unless you are an owner of the residential property as either of the following:
This means that individuals who are Canadian citizens and permanent residents are exempted from a tax return filing requirement unless they own the property as a trustee or as a partner of a partnership.
Susan and Bob, who live as common-law partners, own their townhouse in North Vancouver, BC. Legal title to the house is registered at the Land Title Office in their names. Susan and Bob are both Canadian citizens, and they don’t own the home as nominee or trustee for any other person, nor do they own it as partners of business partnership.
Sylvia and Mario, who are married, are the trustees of a Joint Partner Trust they created as part of their estate planning. The Joint Partner Trust owns the house in Nanaimo, BC that they live in, and a rental property in Comox, BC. Both these properties are registered with the land title office in the names of Sylvia and Mario. Even though Sylvia and Mario are both Canadian citizens, and therefore exempt from paying the UHT, they hold the properties as trustees for a trust.
Jose, a Canadian citizen, is the executor of his late mother’s estate. As executor, Jose holds legal title to his late mother’s house in Edmonton, AB.
Steve, a U.S. citizen who does not have Canadian citizenship or permanent resident status in Canada, owns a house in Victoria, BC where his family vacationed for six weeks in 2002 and then left the house vacant for the rest of the 2022.
XYZ Holdings Ltd., a privately held corporation formed under the laws of BC, owns three rental properties in Toronto, ON. All of the shareholders of XYZ Holdings Ltd. are Canadian citizens. XYZ Holdings Ltd. must file three separate UHT returns (one for each property in Toronto) even though an exemption from the UHT applies.
Jack and Jill are married with an adult child named Jane. All three are Canadian citizens. They have added Jane’s name to the legal title of their one and only home, to make it easier for Jane to deal with the property should something happen to them. Jane is on title only as bare trustee, and Jack and Jill still otherwise beneficially continue to own the whole property.
Tax Payable under Legislation
The UHT imposes a tax on every owner (other than an “excluded owner”) of a residential property on December 31 of a calendar year. The UHT is payable on April 30 of the following calendar year.
The tax is calculated as 1% of the greater of:
Alternatively, a person may elect to use the fair market value (instead of the assessed value) of the residential property determined at any time on or after January 1 of the calendar year and on or before April 30 of the following calendar year. This requires the person to establish the fair market value to the satisfaction of the government and will likely only apply where the property has declined in value relative to the assessed value.
Where a person is co-owner of a property, the tax will be based on the person’s ownership percentage of the property. For example, a person who owns 50% of a property that is subject to the UHT will pay tax of 1% of 50% of the value of the property.
Other Exemptions from the UHT
An owner of a residential property that is not an “excluded owner” is liable to pay the UHT unless an exemption applies. The most notable exemptions from the tax (which are not exemptions from the requirement to file a return to claim the exemption) are as follows:
Failure to file penalty
An owner of a residential property who is required to file a UHT return and fails to file by April 30 of the following year will be liable to a penalty equal to the greater of
If an owner who is required to file a UHT return fails to file by December 31 of the following calendar year, the failure to file penalty will be calculated without the application of certain exemptions which may otherwise apply (including the primary place of residence and qualifying occupancy exemptions). This makes the penalty for filing more than eight months late even more onerous.
For example, if a person who is required to file a UHT return for 2022 for a property with a value of $1,000,000 (but is exempt from the tax for one of the reasons described above) fails to file a UHT return by December 31, 2023, then the penalties become even more onerous because the penalty is calculated as if the tax was owing (even where a tax exemption applied).
The UHTA also imposes penalties for failure to provide information, and for gross negligence or false statements or omissions in filing a UHT return.
The UHTA contains a general anti-avoidance provision as well as special provisions that aim to deny tax benefits arising from non-arm’s length transactions which attempt to take advantage of prospective amendments to the UHTA.
Every affected owner of a residential property must keep records to enable the determination of their obligations and liabilities under the UHTA. Generally, you must keep the records for six years from the end of the year to which they relate.
If you do not have adequate records to support that your ownership of a residential property is exempt from the UHT for a calendar year, the CRA may disallow your exemption for that year.News