Blog

Underused Housing Tax

The deadline for filing and paying the Underused House Tax is October 31, 2023.

The Underused HouseTax (UHT) Act received Royal Assent in June of 2022, and is retroactive toJanuary 1, 2022.

The UHT assesses a1% annual tax on the value of vacant and underused residential properties owned, either directly or indirectly, by foreign, non-resident owners. The value is based on the greater of the Current Value Assessment (CVA) and themost recent purchase price.

Residential properties that meet certain exemptions will not be subject to the 1% tax; however, all owners of residential properties, other than excluded owners, must file an annual declaration for each residential property owned in the calendar year by April 30 of the following Calendar year.

On March 27, 2023, the CRA announced that there will be no penalties or interest assessed for the 2022 UHT returns as long as they are filed and the applicable tax is paid by October 31, 2023. The transitional relief did not change the filing due date, but will waive penalties and interest if returns and payments are received by October 31, 2023.

Residential Properties

Residential properties include:

·      A detached house or similar building containing not more than three dwelling units. This would include

·      Detached homes, duplexes and triplexes, semi-detached homes, row-house units and residential condominium units.

Obligation to file

The filing obligation is based on the registered owner in the land title system rather than the beneficial owner of the property. With this in mind, there will be a filing requirement if the registered owner of a residential property is held by any of the following:

·       a corporation (either directly or as a bare trustee in a trust

·       an individual as a partner in a partnership

·       an individual as a trustee of a trust, or

·       an individual that is neither aCanadian citizen or permanent resident.

If you hold title to a property that you are not the beneficial owner of, you may be considered to be a trustee of a trust and you will have a filing obligation. If you hold property in partnership with a spouse, you will have an obligation to file.

Tax Not Payable

Persons (includingIndividuals, Corporations, Trusts, or Partnerships) other than excluded owners, must file a UHT tax return. However, the properties that meet one of the following exemptions will not be subject to the 1% UHT,

1.    Qualified owner exemption, including residential property owned by:

·  a specified Canadian corporation owned more than 90% owned by Canadian citizens and permanent residents

·  a Canadian partnership where each member is an excluded owner or specified Canadian corporation or;

·  a Canadian trust where each beneficiary is an excluded owner or specified Canadian corporation.

2.    Qualified occupant exemption, including:

·  used as a primary place of residence by the owner, their spouse or child

·  rented at for terms of at least one month, for a total of 180 days or more during the calendar year by the following:

·  an arm’s length person per a written agreement; or a non-arms length person for a fair rent for a period of at least one month

3.    Vacation property in rural areas held for personal use for a minimum of 4weeks/year, such as:

·  property not suitable or accessible for year-round occupancy;

·  property uninhabitable due to disaster or hazardous conditions

·  property undergoing major renovations;

·  property held in the year of death; or

·  property acquired during the year.

Excluded Owners

Owners are considered to be excluded owners, and are exempt from filing a UHT tax returnif they meet one of the following conditions on December 31 of the calendar year:

·  Canadian citizens or permanent residents (except where interest held as a partner of a partnership or a trustee as a trust) except personal representatives of a deceased individual or the estate of a deceased individual;

·  Corporations incorporated inCanada, and whose shares are listed on a Canadian stock exchange;

·  A person who is an owner of a residential property in their capacity as a trustee of a mutual fund, real estate or SIFT trust;

·  Registered charities;

·  Cooperative housing corporations;

·  Municipalities, indigenous governing bodies; and

·  Government of Canada housing,Provincial Government, and other public service bodies (i.e. universities).

·  Note: Private corporations, partnerships and trusts are not excluded owners.

What to be Aware Of

1. Any Canadian corporation, partnership or trust that may not be subject to the tax still MUST file a return or be subject to the penalties for not filing.

2. The penalty for failing to file a declaration is the greater of $5,000 for individuals and$10,000 for non-individual owners, and the total of 5% of the UHT, plus 3% of the UHT for each calendar month the declaration is past due. Due to the significance of the penalty, taxpayers may want to error on the side of filing where there is uncertainty on the filing obligation.

How to Manage your Risk

1. If you do not intend to complete these filings on your client’s behalf, inform the clients that you are not preparing them.

2. If you are completing these forms on your client’s behalf:

·  There may be filing obligations that you may not be able to clearly identify, so communicate this to your clients.

·  Educate yourself on the rules, so you identify those clients required to file.

·  Obtain the appropriate engagement letter.

This article was authored by John Grummett CPA, CA, Tax Partner, TaylorLeibow LLP on behalf of CPA Professional Liability Plan Inc. (CPA PLI) for distribution to members.