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It is anticipated that many corporations, partnerships, trustees, and individuals are going to be caught off guard and subject to large penalties, simply for failing to file an annual return stating they own residential property in Canada.
The Underused Housing Tax Act (UHTA) received Royal Assent on June 9th, 2022 and retroactively implements an annual tax of one percent on the value of vacant or underused residential property. However, you may be required to file a return even if you do not owe any tax under UHTA. Failure to file the return is subject to a minimum penalty of $5,000 as an individual or a minimum $10,000 penalty as a corporation.
You must file a separate Underused Housing Tax return for each property. Penalties are assessed on a per missed filing basis. Where a property is owned by multiple owners – each owner must file a separate return even if one respective ownership qualifies for an exemption.
Who must file a return?
It is easier to determine who is not required to file. Only excluded owners of residential property in Canada do not need to file a return. An excluded owner includes (but is not limited to) the following:
- an individual who is a Canadian citizen or permanent resident – unless included in the list of affected owners below.
- any person – including an individual who is a Canadian citizen or permanent resident – that owns a residential property as a trustee of a mutual fund trust, real estate investment trust, or specified investment flow-through trust (SIFT) for Canadian income tax purposes.
- a Canadian corporation whose shares are listed on a Canadian stock exchange designated for Canadian income tax purposes.
- a registered charity for Canadian income tax purposes.
- a cooperative housing corporation for Canadian GST/HST purposes.
- an Indigenous governing body or a corporation wholly owned by an Indigenous governing body.
An affected owner will need to file a return. An affected owner includes the following:
- an individual who is not a Canadian citizen or permanent resident.
- an individual who is a Canadian citizen or permanent resident and who owns a residential property as a trustee of a trust (other than as a personal representative of a deceased individual).
- any person – including an individual who is a Canadian citizen or permanent resident – that owns a residential property as a partner of a partnership.
- a corporation that is incorporated outside Canada.
- a Canadian corporation whose shares are not listed on a Canadian stock exchange designated for Canadian income tax purposes.
- a Canadian corporation without share capital.
(Property Value x 1%) x (% of Ownership)
What do you need to file?
You will need a valid CRA tax identifier. This could include:
- Social Insurance Number (SIN)
- Individual Tax Number (ITN)
- A Canadian business number (BN) + Underused Housing Tax (RU) account identifier code. RU accounts can be set up online after February 6, 2023.
Note a trust account number (TAN) cannot be used for this filing.
You will need the taxable value of the property. There is also an option to use the fair market value of the property, however this will require a election to be filed along with an appraisal of the property that wea prepared by an accredited real estate appraiser for this purpose.
If you are an affected owner, you must file a return for the calendar year by April 30 of the following calendar year. This includes elections to use the fair market value calculation or exemptions for the primary place o residence.
If you are an affected owner, you need to file the Underused Housing Tax return. The following exemptions are for taxes due. However, if you fail to file and are required to do so, you will be charged the penalty.
Exemptions are available for:
- Type of owner
- Availability of the residential property
- Location and use of the residential property
- Occupant of the residential property
Type of owner exemptions include the following:
- a specified Canadian corporation
- a partner of a specified Canadian partnership, or a trustee of a specified Canadian trust
- a new owner in the calendar year
- a deceased owner, or a co-owner or personal representative of a deceased owner
Availability of the residential property exemptions include the following:
- newly constructed
- not suitable to be lived in year-round, or seasonally inaccessible
- uninhabitable for a certain number of days because of
- a disaster or hazardous conditions
Location and use exemptions include property located in an eligible area and was used by yourself or your spouse for at lease 28 days in the year.
Exemptions based on the occupant include the property is the primary place of residence for you, your spouse, or your child attending a designated learning institution, or at least 180 days during the year include a qualifying occupancy period. A qualifying occupancy period include the following:
- an individual with a written contract who deals at arm’s length.
- an individual with a written contract who does not deal at arm’s length with you, and who pays at least fair rent for the property.
- you, or your spouse or common-law partner, who has a Canadian work permit.
- your spouse or common-law partner, parent, or child who is a Canadian citizen or permanent resident.
This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2023 Shajani CPA.
Shajani CPA is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning services.