New Tax Return Filing Requirements for Residential Property Owners (UHT)

News

2022 UHT Penalty Relief - The Minister of National Revenue announces that owners affected by the Underused Housing Tax (UHT) will have until April 30, 2024, to file their returns for the 2022 calendar year without being charged penalties or interest.

This transitional relief means that although the deadline for filing the 2022 UHT return and paying the UHT payable is still April 30, 2023, no penalties or interest will be applied for UHT returns and payments that the CRA receives before May 1, 2024.

2023 Fall Economic Statement Proposal – UHT Relief for Certain Taxpayers - Following the November 2023 Fall Economic Statement (FES), the government proposed a number of relieving amendments to the Underused Housing Tax Act, eliminating UHT filing requirements for many owners previously caught under the UHT rules. Please note that as of February 5, 2024, these changes have not yet been enacted into law.

The amendments propose eliminating the filing requirement for specified Canadian corporations, partners of specified Canadian partnerships and trustees of specified Canadian trusts.

Previously, these were considered affected owners, but the legislation proposes adding them as excluded owners, meaning that for the 2023 tax year onward, they would no longer have a requirement to file a UHT tax return. As an example, if a property was held in a trust structure, including a bare trust, and all beneficiaries are excluded owners by virtue of being Canadian citizens or permanent residents, the beneficiaries would no longer have a UHT filing requirement under the proposed new rules.

The FES has also proposed lowing the minimum penalty for individuals and corporations who fail to file a UHT return by the filing deadline from $5,000 to $1,000 for individuals and from $10,000 to $2,000 for corporations, effective in respect of 2022 and subsequent calendar years.

The first tax returns for the newly legislated federal Underused Housing Tax (UHT) are due May 1, 2023 for each residential Canadian property owned on December 31, 2022.

Actions required by you:

• Understand the common scenarios where you may have a filing requirement.
• If you are unsure whether you have a filing requirement, consult with your real estate lawyer and your tax accountant.
• If you are confident you have a filing requirement, file the UHT return with the Canada Revenue Agency (CRA) by May 1, 2023.
• Apply for a tax filing number if you do not have a Social Insurance Number (SIN), Individual Tax Number (ITN), or a business number (BN).

What is the UHT?

• The UHT is an annual filing requirement and a tax liability of 1% on the value of non-resident, non-Canadian owned residential real estate that is considered to be vacant or underused
• Although aimed at non-residents and non-Canadians, Canadian individuals (citizens or permanent residents) can still have a filing requirement if they hold residential properties through co-ownerships, partnerships or trusts

What is an Excluded Owner?

• Excluded Owners have no obligations under the UHT (no filing requirement and no tax liability)
• Excluded Owners include individuals who are Canadian citizens or permanent residents who also do not hold Canadian residential properties through co-ownerships, partnerships or trusts

What is an Affected Owner?

• Affected Owners will have a UHT filing requirement and potentially a tax liability
• Affected Owners include non-resident foreign individuals
• Affected Owners can also include Canadian citizens and permanent residents if they hold residential properties through co-ownerships, partnerships or trusts

Some common scenarios where there is a filing requirement:

• Any individual who owns a residential property located in Canada and who does not have Canadian citizenship or permanent residency status for immigration purposes (not tax purposes)
• Any 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, who owns a residential property as a partner of a partnership (i.e. co-owner with a non-Canadian citizen or non-Canadian permanent resident)
• Two or more persons who co-own a rental property, where a residential property has sufficient activity to constitute a business, this could be considered a partnership. Therefore, UHT filing obligations may exist.
• Any trustee of a trust that holds residential property. Filing obligations exist for the trustee/trustees who act for the trust (except for first year estate trusts)
• Any residential property held by a private Canadian corporation or foreign corporation

UHT filing forms, due dates and penalties:

• File Form UHT-2900 for each residential property owned on December 31, 2022.
• CRA filing instructions.
• If the UHT applies to you, the 2022 UHT return (Form UHT-2900) MUST be filed, and any tax remitted, no later than May 1, 2023, and
• Failure to file the UHT return by May 1, 2023 will result in a minimum penalty of $5,000 for individuals and $10,000 for corporations, for each property, and a maximum penalty equal to the total of
  • 5% of the UHT payable for the residential property for the calendar year, and
  • 3% of the UHT payable for the residential property for the calendar year multiplied by the number of complete months that the return is past due
• CRA will charge interest on any amounts not paid by April 30, 2023, based on CRA prescribed interest rates

It is important to note that the UHT can apply to various types of residential properties, including detached houses, duplexes, triplexes, semi-detached houses, row houses, residential condos, and other similar premises with three or fewer dwelling units. In addition, those with a life interest or long-term lease in a residential property or the land it is situated on could also be caught even if they are not the owners per se.

Note: The laws are complex and are subject to frequent change. This article is not intended to represent legal or tax advice. Please consult with your real estate lawyer and tax advisor if you have questions about your UHT filing and tax obligations.

 

This has been prepared by the Professional Wealth Advisory Group of Raymond James Ltd., (RJL). Statistics and factual data and other information are from sources RJL believes to be reliable but their accuracy cannot be guaranteed. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities nor is it meant to replace legal, accounting, taxation or other professional advice. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. The information is furnished on the basis and understanding that RJL is to be under no liability whatsoever in respect thereof. This is intended for distribution only in those jurisdictions where RJL and the author are registered. Securities-related products and services are offered through Raymond James Ltd., Member - Canadian Investor Protection Fund. Insurance products and services are offered through Raymond James Financial Planning Ltd., which is not a Member - Canadian Investor Protection Fund.