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: 246141
Dear [Client]:
Subject: Underused housing tax (UHT) interpretation
Application of the UHT to partnerships
We are writing in response to the correspondence of [mm/dd/yyyy], […], concerning the application of the UHT to partnerships. 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, we understand that:
1. A property, located in Canada, is a residential property for UHT purposes.
2. The residential property is used for providing sleeping or lodging accommodation on a transient or intermittent basis, and is listed on the accommodation-sharing platform.
3. Two individuals (that is, spouses) are owners of the residential property for UHT purposes.
4. The two individuals are citizens or permanent residents of Canada.
5. As part of filing their personal Canadian income tax returns, each of the two individuals complete and file Form T2125, Statement of Business or Professional Activities, in which they split and report the income from using the property to provide sleeping or lodging accommodation on a transient or intermittent basis.
RULING REQUESTED
You would like to know whether the two individuals are considered to be partners of a partnership, and whether each of the two individuals has to file UHT returns 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. For example, the Canada Revenue Agency (CRA) will not issue a ruling when it considers that it would be inappropriate to do so. Circumstances in which the CRA may not issue a ruling include when a request is for a determination of fact, and the circumstances are such that all of the pertinent facts cannot be established. Among other things, this includes issues involving the existence of a partnership or a trust.
However, we are pleased to provide an interpretation of the relevant UHTA provisions which may help you determine whether the two individuals have to file UHT returns. Also, we are providing additional information which might affect an individual’s UHT obligations for the 2023 and subsequent calendar years.
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 “excluded owner”
The term “excluded owner” is defined in section 2. For simplicity, we will focus on paragraphs (b) and (d), which are the two paragraphs that most commonly apply to a person that is an individual:
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
(b) 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 trustee of a trust (other than a personal representative in respect of a deceased individual) or as a partner of a partnership;
(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;
Given that each of the two individuals is a citizen of Canada, each of them would be an excluded owner of the residential property for UHT purposes, unless they are an owner of the residential property in the capacity as trustee of a trust or as partner of a partnership.
Whether an individual is an owner as a partner of a partnership
For purposes of paragraph (b) of the definition of “excluded owner,” 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. 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 that 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, which can be found on the Canada.ca website.
ADDITIONAL INFORMATION
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 amend the definition of “excluded owner” to include more persons as excluded owners. This amendment was previously announced on November 21, 2023, and would apply in the 2023 and subsequent calendar years.
Under the proposed amendments to the 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:
* as an individual in their own right;
* as a personal representative of a deceased individual;
* as a trustee of a trust that is a mutual fund trust, real estate investment trust or SIFT trust for Canadian income tax purposes;
* as a trustee of a trust that is a specified Canadian trust (proposed new excluded owner); or
* as a partner of partnership that is a specified Canadian partnership (proposed new excluded owner); or
* an individual who is not a citizen or permanent resident of Canada and who is an owner of a residential property in any of the following capacities:
* 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
* as a trustee of a trust that is a specified Canadian trust (proposed new excluded owner).
Individuals that are not mentioned in the above list would be, by default, affected owners for UHT purposes for the 2023 and subsequent calendar years.
For more information about the proposed amendments to the definition of “excluded owner,” 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 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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