Editor note: On March 27, 2023, the Canada Revenue Agency announced that “no penalties or interest will be applied for UHT returns and payments that the CRA receives before November 1, 2023”. This announcement effectively extends the filing and payment deadline to October 31, 2023.
The deadline is fast-approaching for the filing of a return (the “UHT return”) under Canada’s Underused Housing Tax Act (the “Act”). Very generally, the Act was intended to impose a 1% tax on the value of vacant or underused “residential property” located in Canada and owned by individuals who are neither citizens nor permanent residents of Canada. A “residential property” includes, among other things, a detached house, a duplex, a triplex, a row-house unit or townhouse, a residential condominium unit, and a cottage, cabin or chalet used for non-commercial purposes.
The actual scope of the Act is more expansive and many owners may not be aware of their filing obligations, such as Canadian and non-resident private corporations, not-for-profit corporations (which are not registered charities), trustees of a trust (including bare trusts), and partners in a partnership. This article highlights who may have to file a UHT return.
Excluded owners and affected owners
When determining who may have a filing obligation, there are two key definitions.
An “owner” of residential property includes a person identified as the legal owner of the property in the land registration system where that property is located, or that could reasonably be considered an owner of the residential property based on that system. This definition would include an individual or entity holding residential property as bare trustee, or a nominee corporation.
An “excluded owner” includes citizens or permanent residents of Canada who own residential property (other than as a trustee of a trust or a partner of a partnership), federally or provincially incorporated corporations whose shares are listed on a Canadian stock exchange, and registered charities.
All owners of a residential property, other than excluded owners, must file a UHT return for every residential property which they own in Canada on December 31 of any given calendar year. The Canada Revenue Agency (the “CRA”) refers to these owners as “affected owners,” which include Canadian and non?resident private corporations, not-for-profit corporations, trustees of a trust (including a bare trust) and partners of a partnership. Even if an affected owner is exempt from paying the underused housing tax (“UHT”), the affected owner must still file a UHT return by May 1, 2023 (since the April 30 deadline falls on a Sunday). An excluded owner does not have a filing requirement and does not have to pay the UHT.
Filing obligations and penalties
To file a UHT return, a corporate affected owner must have a CRA business number and register for a RU program account with the CRA. If an individual affected owner does not have a Social Insurance Number (“SIN”) number or an Individual Tax Number (“ITN”), that owner will be required to obtain one prior to the filing of the UHT return.
The Act imposes a minimum penalty on all affected owners who neglect to timely file a UHT return in the amount of $5,000, for affected owners who are individuals, and $10,000, for affected owners that are corporations. These penalties apply to each residential property for which the owner fails to file a UHT return and the CRA is not statute-barred from assessing UHT, penalties and interest when an owner fails to file a UHT return.
Relevant exemptions to the Act
If an owner is an affected owner, the Act may still exempt the owner from UHT under one of its many exceptions (although the owner would still be required to file a UHT return). These exceptions apply based on: (i) the type of owner of the residential property; (ii) the availability of the property; (iii) the occupants residing in the property; and (iv) the location and use of the property. Affected owners should carefully review these exceptions to determine if any apply to their particular circumstances.
Several interpretive issues have been raised by the tax community and we are monitoring for any clarifications published by the CRA. If you have any questions about your filing obligations under the Act, please contact a member of the Miller Thomson LLP Corporate Tax group.
