Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 247005
Business Number: N/A
Attention: [Client]
Dear [Client]:
Subject: Underused Housing Tax (UHT) interpretation
Application of the UHT to partnerships
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the UHT to partnerships.
All legislative references are to the Underused Housing Tax Act (UHTA) unless otherwise specified.
Based on your correspondence of [mm/dd/yyyy], and your telephone conversations with my colleagues and […] and […] on [mm/dd] and [mm/dd/yyyy], and on [mm/dd/yyyy], we understand the following:
1. You and your spouse are both Canadian citizens.
2. You and your spouse own several residential condominiums, one of which is your primary place of residence, and the remainder are long-term rental properties.
3. All of the properties are owned as joint tenants with both yourself and your spouse on title.
INTERPRETATION REQUESTED
You would like to know if spouses who co-own property are considered partners of a partnership for UHT purposes.
INTERPRETATION GIVEN
UHT obligations
Generally, the UHTA sets out two obligations:
1. subsection 7(1) provides that a person that is an owner (other than an excluded owner) of one or more residential properties on December 31 of a calendar year is required to file a return for each residential property for the calendar year; and
2. subsection 6(3) provides that every person that is, on December 31 of a calendar year, an owner (other than an excluded owner) of a residential property must pay to His Majesty in right of Canada tax in respect of the residential property for the calendar year in the amount determined by the formula described therein.
For each of the two obligations in respect of a particular property, it is important to determine whether a property is a residential property, whether a person is an owner, and whether the person is an excluded owner or an affected owner.
For information on the definitions of “owner” and “residential property”, please see UHTN1, Introduction to the Underused Housing Tax. All UHT notices are available on the Canada.ca/cra-uht website.
Excluded owners
A person that is an excluded owner of a residential property on December 31 of a calendar year does not have to file a UHT return or pay the UHT for the residential property for the calendar year. The definition of “excluded owner” is discussed in the following pages.
Affected owners
The Canada Revenue Agency (CRA) uses the term “affected owner” to refer to a person that is an owner of a residential property on December 31 of a calendar year and that is not an excluded owner of the residential property on that date. Under subsection 7(1), a person that is an affected owner of a residential property on December 31 of a calendar year has to file a UHT return using form UHT2900, Underused Housing Tax Return and Election Form for the residential property for the calendar year. Please note:
* a person that is an affected owner of two or more residential properties on December 31 of a calendar year has to file separate UHT returns for each residential property for the calendar year;
* a person that owns a residential property in more than one capacity must file a separate UHT return for each capacity in which they are an affected owner; and
* if there are two or more affected owners of a residential property on December 31 of a calendar year, each of the affected owners has to file a separate UHT return for the residential property for the calendar year.
For each calendar year, a person that is an affected owner of a residential property in Canada on December 31 of the calendar year, must file an annual UHT return with the Minister of National Revenue on or before April 30 of the following calendar year.
In addition, an affected owner of a residential property on December 31 of a calendar year has to pay the UHT on or before April 30 of the following calendar year for their ownership of the residential property unless their ownership of the residential property is exempt from the UHT for the calendar year.
It is the owner’s responsibility to determine their obligations under the UHTA for each residential property that they are an owner of on December 31 of a calendar year.
Definition of “excluded owner” for the 2022 calendar year
The term “excluded owner” is defined in section 2. This definition was amended for the 2023 and subsequent calendar years. Therefore, the following provides the definition of the term for the 2022 calendar year. For the 2023 calendar and subsequent calendar years, please see the Additional Information section at the end of this letter.
Under paragraph (b) of the definition, an excluded owner of a residential property means a person (other than a prescribed person) that is on December 31, 2022 an individual who is a citizen or permanent resident, except to the extent that the individual is an owner of the residential property in their capacity as a partner of a partnership or as a trustee of a trust (other than a personal representative in respect of a deceased individual).
Simply put, for the 2022 calendar year, as you and your spouse are both citizens of Canada, each of you would be an excluded owner and would have no UHT obligation unless you own the residential property in your capacity as either a partner of a partnership or as a trustee of a trust.
Please refer to Underused Housing Tax Notice UHTN1 for a complete definition of “excluded owner” for the 2022 calendar year.
Whether an individual is an owner as a partner of a partnership
You requested information about partnerships for UHT purposes. It is a mixed question of fact and law as to whether an individual is an owner of a residential property in their capacity as a partner of a partnership.
The term “partnership” is not defined in the UHTA. For purposes of administering the UHTA in all parts of Canada (other than Quebec), the CRA interprets the term “partnership” to mean the relationship that exists between persons:
* carrying on a business
* in common
* with a view to profit
The above three criteria are fundamental for a relationship to be a valid partnership under general law. If any of the criteria are missing, then the relationship is not a valid partnership. This interpretation is based on the legal definition of partnership that is found in most provincial partnership legislation. Also, it is consistent with how the CRA interprets the term “partnership” for income tax and GST/HST purposes.
The fact that two persons own a property together does not, by itself, create a partnership. For example, a familial relationship, such as marriage, does not necessarily create a partnership. The existence of a partnership depends on the true contract and intention of the parties as determined by examining all of the facts of the case. An enquiry must be made into whether the objective documentary evidence and the surrounding facts, including what the parties actually did, are consistent with a subjective intention to carry on business in common with a view to profit. In short, one has to consider the parties’ intentions, their actions or conduct, the facts or circumstances of the arrangement, and any evidence. All of these must be examined when determining whether persons are carrying on a business in common with a view to profit.
Although two or more persons may declare themselves as having a partnership, that does not, by itself, mean that they have created a partnership. A court might decide that the persons have not created a partnership, especially if their actions, the facts and the evidence do not support their stated intention to carry on business in common with a view to profit.
Conversely, where two or more persons declare themselves as not having a partnership, that does not, by itself, mean that they have not created a partnership. A court might decide that they have, in law, created a partnership, especially if their actions, the facts and the evidence support that they are carrying on business in common with a view to profit.
To be clear, nothing in the UHTA deems a relationship to be a partnership. Similarly, nothing in the UHTA deems a person to be a partner of a partnership. If a relationship is a partnership under general law, then it is likely treated as a partnership for UHT purposes. Further, if two persons characterize their relationship as a partnership for Canadian income tax purposes, it may be difficult for them to characterize their relationship as something else for UHT purposes. If two persons characterize their relationship as something other than as a partnership for Canadian income tax purposes (for example, as co-owners of a residential property) then it is possible that the same characterization also applies for UHT purposes.
For more information on partnerships, please refer to Underused Housing Tax Notice UHTN15, Questions and Answers About the Underused Housing Tax.
If you and your spouse determine that you are not partners of a partnership, as Canadian citizens you would be excluded owners unless you own the residential property as a trustee of a trust. If you determine that you are excluded owners, then neither of you would have to file a UHT return for the 2022 calendar year.
If you and your spouse determine that you are partners of a partnership, you would each be an affected owner for the 2022 calendar year, and you would each be required to file a UHT return for your respective ownership percentage of the residential property. However, you may each be eligible to claim the exemption for partners of a specified Canadian partnership as explained below.
ADDITIONAL INFORMATION
Exemptions for specified Canadian partnerships for the 2022 calendar year
As previously noted, an affected owner must file a UHT return for their ownership percentage but would not have to pay the UHT if the affected owner qualifies for and claims an exemption. As your question relates specifically to partners of a partnership, our response will focus on that exemption. Details about other exemptions may be found on Canada.ca/cra-uht under “Determine your obligations” or in the various UHT notices.
For the 2022 calendar year only, an affected owner that is a partner of a specified Canadian partnership would be exempt from paying the UHT. For the 2022 calendar year, a “specified Canadian partnership” means a partnership whose members are all, on December 31, 2022, any of the following:
* excluded owners
* individuals who are citizens or permanent residents of Canada and who would be excluded owners if they were not owners of the residential property as partners of a partnership
* specified Canadian corporations
Therefore, for the 2022 calendar year, if a partnership is comprised only of citizens or permanent residents of Canda, each partner would be eligible to claim the exemption for partners of a specified Canadian partnership for their respective ownership percentage on their individual UHT return.
For additional information on the exemption for specified Canadian partnerships, please see Underused Housing Tax Notice UHTN4, Exemptions for Specified Canadian Partnerships, Trusts and Corporations.
Definition of “excluded owner” for the 2023 and subsequent calendar years
Starting with the 2023 calendar year, the definition of “excluded owner” was amended to include more persons as excluded owners.
Under the amended definition of “excluded owner,” the following are examples of individuals who would be excluded owners for UHT purposes, for the 2023 and subsequent calendar years:
* an individual who is a citizen or permanent resident of Canada and who is an owner of a residential property in any of the following capacities:
o as an individual in their own right;
o as a partner of partnership that is a specified Canadian partnership;
o as a trustee of a trust that is a mutual fund trust, real estate investment trust or SIFT trust for Canadian income tax purposes; or
o as a trustee of a trust that is a specified Canadian trust.
For the 2023 and subsequent calendar years, the definition of specified Canadian partnership was also amended to mean, in part, a partnership where each member of the partnership is, on December 31 of the calendar year, an individual who is a citizen or permanent resident of Canada. Therefore, if you and your spouse determine you are partners of a specified Canadian partnership for the 2023 or subsequent calendar years, neither of you would have to file a UHT return for your respective ownership percentages as you would both meet the definition of excluded owner.
It is important to note that, under the amendments, it would make no difference whether the ownership structure of a residential property owned solely by citizens or permanent residents of Canada was as a partnership or as co-owners, provided that the partnership (if a partnership were to actually exist) would be a specified Canadian partnership.
For more information about the amendments to the definition of “excluded owner,” please refer to Underused Housing Tax Notices UHTN1 and UHTN16, Proposed Amendments to the Underused Housing Tax.
DISCLAIMER
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the interpretation given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the UHTA, regulations, or the CRA’s interpretative policy could affect the interpretation or the additional information provided herein.
CONTACT
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 902-719-7843.
Sincerely,
Stacy Furlong
Industry Sector Specialist
Real Property - Specialty Tax Unit
Financial Institutions and Real Property Division
GST/HST Rulings Directorate
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