The Federal Underused Housing Tax (“UHT”) came into effect on the 1st of January 2022. The UHT imposes a 1% tax on vacant or underused properties situated in Canada.
The policy goal of this legislation is to address the housing crisis with the focus upon properties held by non-Canadians. The new filing requirements, however, may impact many Canadians who are otherwise exempt from the tax itself.
This reminds me of a quote often attributed to Sir Winston Churchill: “There is no such thing as a good tax.” Whether, or not these are the words of the Great Man, let’s not let the facts get in the way of a good story. Or, as Dr. Paul Barker, my former political science professor at Western would put it: “Every action by the government has externalities, some envisioned, but many are not.”
The 2022 filing deadline has been extended to April 30, 2024. Starting next year, the UHT form must be submitted on or before April 30th for each calendar year. There is no time limit for the CRA to assess property owners the UHT, penalties and interest. The non-filing penalty is as follows:
⦁ minimum of $5,000 for individuals; and
⦁ minimum of $10,000 for corporations.
Are you an Excluded Owner?
The initial step involves checking if the legal property owner qualifies as an excluded owner and is therefore exempt from filing. If you meet the criteria, you won’t have any responsibilities under the UHT Act. You can find a list of excluded owners here.
Canadian citizens or permanent residents, for example, are excluded owners unless they hold a property as a partner of a partnership or a trustee of a trust. CRA has confirmed that the reference to ‘trustee of a trust’ include a trustee of a bare trust. While the executor of a person’s will is not considered a trustee for a trust, there are situations where they might still need to submit the UHT form.
The term ‘partnership’ is not defined in the UHT Act. The CRA has suggested, however, that for a relationship to be a valid partnership under general law, persons must be carrying on a business together with a view to profit. It is vitally important to note that a formal partnership registration is not required for the partnership to exist, for the purposes of this legislation.
Given the complex nature of this legislation, multiple property owners may be required to file UHT form each year. Here are some examples that highlight potential UHT filing requirements for joint property ownership with an adult child:
For estate planning purposes
The CRA indicated that a property ownership with an adult child, where the child could be considered to hold the property in trust, may trigger reporting obligations. A declaration of gift may not be sufficient supporting evidence. As an aside, bear in mind what Justice Sloan wrote in Coulston v. Dixon: “It has often been said that registering property in joint ownership is a poor person’s estate plan.” Or, in other words: don’t do this. Ever.
For more insights on this topic, please see our article titled Pitfalls of Joint Property Ownership with an Adult Child.
For financial planning purposes
The parent may be required to file the UHT form if there is a written agreement setting out that the parent is holding the residential property in trust for the adult child. This is because the parent could be considered a trustee of a trust and be no longer be an excluded owner.
What to do if you are an Affected Owner?
If you are not an excluded owner, you are an affected owner and must file the UHT form annually. Canadian Controlled Private Corporations (“CCPC”), for example, are not excluded owners. CCPCs must file a separate UHT form for each residential property owned by the corporation.
The good news is that many property owners will not need to pay the UHT given multiple exemptions.
Disclaimer
Please be aware that the above information is provided for general awareness purposes and is not legal or tax advice. It is not an exhaustive review of all pertinent documents, applicable laws, or specific details. Individuals are encouraged to consult with their tax advisor or legal counsel for personalized guidance.
Contact Geoff Pollock & Associates
We will be happy to discuss your specific situation. You can contact us via email or give us a call at 416-777-0088.
