The New Underused Housing Tax – You Are a Canadian Citizen So How Does It Affect You?

Written by Dana Rittenhouse, TEP, CEA, Kingston Ross Pasnak LLP, Hugh Neilson, FCPA, FCA, TEP, Kingston Ross Pasnak LLP

Hopefully, you have heard about the new Underused Housing Tax (“UHT”) by this point. You may be wondering what it means for you, a Canadian citizen.

The basic premise is to tax non-Canadians owning residential property in Canada which is not being used in a way that benefits our society or assists in resolving our current housing crisis. Unfortunately, as with so many new legislative changes the government has written the legislation to avoid any loopholes. In so doing, they have created filing requirements in many cases where no tax will be payable. Even where there is no UHT payable, failure to file the return carries potential $5,000 (individual) or $10,000 (corporate/partnership) penalties.

We are just beginning to realize the many situations that will require UHT filings (Form UHT-2900) by average Canadian citizens. Thankfully, the government has provided relief from potential penalties and interest as long as the filings are completed by October 31, 2023 (the legislated deadline is April 30). This will give all of us a chance to breathe and to reflect more on the situations which may require filings, and to ensure everyone is aware of the requirement to prepare and file the return.  This article will only speak to issues for individuals who are Canadian citizens (which also apply to lawful permanent residents), however private corporations owning residential properties are also generally required to file UHT returns.

A Canadian citizen on title for residential property of which they are the beneficial owner(s) is not required to file. However, the UHT is complex, and many situations are not so straightforward.

If you are a non-resident Canadian citizen, the current legislation excludes you from filing returns, under the same conditions as a citizen resident in Canada.

If you are holding the title on a residential property in Canada and your situation is not straightforward, it is vital that you consider whether a UHT filing is required. It is not worth the risk to ignore the issue and hope the CRA does not notice you.

A Canadian citizen whose name is on title, but who has no beneficial interest in the property, will need to file.  The only exception is for the personal representative of a deceased person (in other words, the executor of an estate).

If your name is on title as the child of the beneficial owner(s) for probate purposes, the UHT filing is required. If your name is on title to assist your children in obtaining a mortgage, there is a UHT filing required.

In some cases where a couple owns one or more rental properties, only one is named on title, however, the property may be jointly owned.  In that case, the individual on title is holding an interest in the residential property in trust for the other owner and therefore has a UHT filing requirement.

If your name is on title but the residential property is actually an asset of your corporation, or a partnership, with any income reported and taxed in that entity, then you are holding that property as either a trustee or a partner, either of which requires a UHT filing.

The UHT will also affect many farm partnerships (and corporations) as it is often the case that the residential properties on the farm are included on the same title deed as the farmland. If a corporation or partnership owns the land, the residential properties will also be assets of the corporation or the partnership, regardless of the principal residence status for the farmer and his family.

In all of these examples, most filers will be able to claim an exemption from the tax. Here are the most common exemptions which may apply to the above situations:

1. If you are holding title on behalf of beneficial owners (e.g. your parent, child, spouse,) who are all Canadian citizens then you can claim the exemption of being a trustee of a “Specified Canadian Trust”.  You do not need to have a trust account number or intend to file trust returns (although new legislation may require you to start filing trust returns for 2023 and future years).
2. If you are holding title as a member of a partnership, and all members of the partnership are Canadian citizens then you can claim the exemption of being a “Specified Canadian Partnership”.

Certain other beneficiaries or partners can also permit these exemptions. If you do not meet one of the above exemptions, there are many others that may apply and we strongly recommend that you consult with your accountant to find the best exemption for your situation.

To be clear, however, an exemption means that UHT is not payable – a filing is still required to claim the exemption.

As the above demonstrates, many Canadians will be required to file UHT returns. Even if no UHT is payable, the penalties for failure to file, which apply on a per property basis, are substantial.

This article can only scratch the surface of the complexities of the UHT. The CRA website contains substantial further details and commentary. For more information, please contact your DFK Canada advisor.