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: 246073
Dear [Client]:
Subject: Underused housing tax (UHT) ruling and UHT interpretation
Application of the UHT to bare trusts
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the UHT to bare trusts. We apologize for the delay in this response.
All legislative references are to the Underused Housing Tax Act (UHTA) unless otherwise specified.
Based on your correspondence, and your conversations with my colleague […] on [mm/dd/yyyy], and [mm/dd/yyyy], we understand that:
1. The legal (titled) ownership of a residential property situated in Canada is in the name of a corporation (the Corporation). The Corporation is incorporated in […][Province X].
2. Under a bare trust agreement between you and the Corporation, the Corporation is an owner of the residential property as trustee of a bare trust and you are the beneficiary of the bare trust. You (as an individual) do not have legal (titled) ownership of the residential property.
3. You are a Canadian citizen and the sole shareholder of the Corporation.
RULING REQUESTED
You would like to know who has to file a UHT return for the residential property.
As noted in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, there are circumstances where a ruling will not be issued. A ruling provides the Canada Revenue Agency’s (CRA) position on specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person, and where all of the relevant facts and supporting documentation have been presented in writing. As we are not in possession of all of the pertinent facts relating to the Corporation, we are unable to provide a ruling on whether the Corporation has to file a UHT return for the residential property.
However, we are pleased to provide a ruling on whether you (as an individual) have to file a UHT return for the residential property. We are providing an interpretation of the relevant UHTA provisions which may help the Corporation determine whether it has to file a UHT return for the residential property. Also, we are providing additional information which might affect the Corporation’s UHT obligations for the 2023 and subsequent calendar years.
RULING GIVEN
Based on the facts set out above, we rule that you (as an individual) do not have to file a UHT return for the residential property.
EXPLANATION
As explained below in the interpretation portion of this letter, you (as an individual) are not identified as a legal (titled) owner in respect of the residential property in the land registration system. Further, there is nothing to indicate that you fall within any of paragraphs (a) to (d) of the definition of “owner.”
Therefore, you (as an individual) are not an owner of the residential property for UHT purposes. Consequently, you are not brought into the scope of either subsection 7(1) or subsection 6(3), and therefore, you have no UHT obligations with respect to the residential property.
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, 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.
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 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 return 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; 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.
Under paragraph 8(a), a person that is required under subsection 7(1) to file a return for a residential property for a calendar year must file it with the Minister of National Revenue on or before April 30 of the following calendar year.
Under subsection 6(3), a person that is an affected owner of a residential property on December 31 of a calendar year has to pay the UHT for the residential property for the calendar year, unless their ownership of the residential property is exempt from the tax for the calendar year.
Definition of “owner”
The term “owner” is defined in section 2 as follows:
owner of a residential property means a person that is identified as an owner in respect of the residential property under the land registration system or other similar system applicable where the residential property is located, or that could reasonably be considered to be an owner in respect of the residential property based on such a system, and includes a person that
(a) is a life tenant under a life estate in respect of the residential property,
(b) is a life lease holder in respect of the residential property,
(c) has, under a long-term lease, continuous possession of the land on which the residential property is situated, or
(d) is a prescribed person,
but does not include
(e) a person that gives continuous possession of all the land on which the residential property is situated to persons referred to in paragraph (b) or (c), or
(f) a prescribed person.
The first person mentioned in the definition of “owner” is a person that is identified as an owner in respect of the residential property under the land registration system or other similar system applicable where the residential property is located. The CRA interprets this as referring to a person that is identified as a legal (titled) owner in respect of the residential property in the land registration system. Therefore, in your situation, this would capture the Corporation.
The second person mentioned in the definition of “owner” is a person that could reasonably be considered to be an owner in respect of the residential property based on such a system. As explained in Question 1.14. of Underused Housing Tax Notice UHTN15, Questions and Answers About the Underused Housing Tax, such a person does not include a beneficiary of a trust, like you.
Definition of “excluded owner”
The term “excluded owner” is defined in section 2. For simplicity, we will focus on paragraphs (c) and (d), which are the two paragraphs that most commonly apply to a person that is a corporation:
excluded owner of a residential property for a calendar year means a person (other than a prescribed person) that is on December 31 of the calendar year
(c) a corporation incorporated under the laws of Canada or a province whose shares are listed on a stock exchange in Canada for which a designation under section 262 of the Income Tax Act is in effect;
(d) a person that is an owner of the residential property in their capacity as a trustee of
(i) a mutual fund trust as defined in subsection 248(1) of the Income Tax Act,
(ii) a real estate investment trust as defined in subsection 122.1(1) of that Act, or
(iii) a SIFT trust as defined in subsection 122.1(1) of that Act;
Pursuant to paragraphs (c) and (d) of the definition of “excluded owner,” the following are examples of corporations that are excluded owners for UHT purposes:
* a corporation that is incorporated under the laws of Canada or a province whose shares are listed on a Canadian stock exchange designated for Canadian income tax purposes and that is an owner of a residential property in any of the following capacities:
* as a corporation in its own right;
* as a personal representative of a deceased individual;
* as a trustee of a trust that is not a mutual fund trust, real estate investment trust or SIFT trust for Canadian income tax purposes; or
* as a partner of a partnership; or
* any corporation that is an owner of a residential property as a trustee of a trust that is a mutual fund trust, real estate investment trust or SIFT trust for Canadian income tax purposes.
Corporations that are not mentioned in the above list are, by default, affected owners for UHT purposes, unless the corporation is described elsewhere in another paragraph of the definition of “excluded owner.”
As we are not in possession of all of the pertinent facts relating to the Corporation (for example, we do not know if the Corporation’s shares are listed on a Canadian stock exchange designated for Canadian income tax purposes) we cannot make a determination as to whether the Corporation falls within the definition of “excluded owner.”
The Corporation is an owner of the residential property for UHT purposes, and if the Corporation is an affected owner of the residential property for UHT purposes, the Corporation will brought into the scope of subsections 7(1) and 6(3). If that is the case, then where the Corporation is an affected owner of the residential property on December 31 of a calendar year, the Corporation will have to:
* file a return for the residential property for the calendar; and
* pay the UHT for the residential property for the calendar year, unless the Corporation’s ownership of the residential property is exempt from the tax for the calendar year.
ADDITIONAL INFORMATION
Whether a person is an owner as a trustee of a trust
As the facts state that the Corporation is an owner of the residential property as trustee of a bare trust, we are including the following about bare trusts for the Corporation’s information.
For purposes of administering the UHTA, the CRA interprets the word “trust” to include a bare trust and interprets the word “trustee” to include a trustee of a bare trust. It is a mixed question of fact and law as to whether a person is an owner of a residential property in their capacity as a trustee of a trust.
The term “bare trust” is not defined in the UHTA. Generally, a bare trust is a trust where the trustee holds legal (titled) ownership of the trust property and is not required to perform any active duty to carry out the trust. The beneficiaries of the trust hold the beneficial ownership of the trust property.
For more information on trusts and bare trusts, please refer to Underused Housing Tax Notice UHTN15, Questions and Answers About the Underused Housing Tax, which can be found on the Canada.ca website.
Proposed amendments to the definition of “excluded owner”
On May 2, 2024, the Minister of Finance Canada tabled Bill C-69, the Budget Implementation Act, 2024, No. 1, in the House of Commons. Among other things, Bill C-69 would affect certain Canadian corporations. These amendments were previously announced on November 21, 2023, and would apply in the 2023 and subsequent calendar years.
Under the proposed amendments, the definition of “excluded owner” would be revised to include more persons as excluded owners. Specifically, a person (such as a corporation) would be an excluded owner for UHT purposes, for the 2023 and subsequent calendar years, if the person is an owner of a residential property as a trustee of a trust that is a specified Canadian trust. As an excluded owner of a residential property for a calendar year, such a person would not have to file a UHT return or pay the UHT for the residential property for the calendar year.
For more information about the proposed amendments, please refer to Underused Housing Tax Notice UHTN16, Proposed Amendments to the Underused Housing Tax, which can be found on the Canada.ca website.
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 CRA is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the UHTA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation(s) 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(s) or the additional information provided herein.
CONTACT
If you require clarification with respect to any of the issues discussed in this letter, please call Stacy Furlong at 902-719-7843.
Sincerely,
Chris Lewis
Manager
Real Property – Specialty Tax Unit
Financial Institutions and Real Property Division
GST/HST Rulings Directorate
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