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: 246047
Dear [Client]:
Subject: Underused housing tax (UHT) ruling and UHT interpretation
Obligation to file UHT returns
Thank you for your correspondence of [mm/dd/yyyy], concerning a property and whether the owners have to file UHT returns for the cottages situated on the property. We apologize for the delay in this response.
All legislative references are to the Underused Housing Tax Act (UHTA) unless otherwise specified.
STATEMENT OF FACTS
Based on your correspondence, and your conversation with my colleague […] on [mm/dd/yyyy], we understand that:
1. Your correspondence relates to a parcel of real property located in […][Canada]. The parcel of real property is legally described as […] (the Property).
2. [#] self-contained seasonal cottages are situated on the Property. The cottages range in size […]. Each cottage has its own civic address […]. Water to the cottages is shut off […][in the colder months].
3. The Property is owned by a group of individuals whose complement can change over time. Currently, the Property is owned by a group of [#] individuals composed of [#] individuals and [#] groups of two individuals (that is, [#] couples). Among the [#] individuals and [#] couples, each individual/couple owns […][an X%] undivided interest in the Property as tenants in common.
4. […][Terms of the Co-tenancy Agreement (the Agreement)]. You have received legal advice that the Agreement does not create a joint venture or a partnership among the individuals/couples.
5. You are one of the individuals included in the [#] couples. You and the other individual in your couple own your combined […] interest in the Property as joint tenants. You and the other individual in your couple do not own your combined […] interest in the Property as partners of a partnership or as trustees of a trust.
6. You and the other individual in your couple are citizens of Canada.
7. In terms of the other [#] individuals in the group, it is your understanding that […][all except one] are citizens of Canada. […].
RULING REQUESTED
You would like to know whether each individual in the group has to file UHT returns for […][all of the] cottages situated on the 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 [#] cottages and all of the individuals in the group, we are unable to provide a ruling that applies to all of the individuals.
However, we are pleased to provide a ruling on whether you and the other individual in your couple have to file UHT returns for [all of the] cottages situated on the Property. We are providing an interpretation of the relevant UHTA provisions which may help the other [#] individuals in the group determine whether they have to file UHT returns for the [#] cottages situated on the Property. Also, we are providing additional information which might affect some of the other [#] individuals’ UHT obligations for the 2023 and subsequent calendar years.
RULING GIVEN
Based on the facts set out above, we rule that you and the other individual in your couple are excluded owners for UHT purposes. Therefore, neither you nor the other individual in your couple has to file UHT returns for any of the [#] cottages situated on the Property.
EXPLANATION
Neither you nor the other individual in your couple has to file UHT return for any of the [#] cottages situated on the Property.
Even if each of the [#] cottages is a separate residential property for UHT purposes, and even if you and the other individual in your couple is an owner of the residential properties for UHT purposes, the facts remain that you the other individual in your couple:
* are citizens of Canada;
* own your combined […] interest in the Property as joint tenants; and
* do not own your combined […] interest in the Property as partners of a partnership or as trustees of a trust.
Consequently, you and the other individual in your couple are excluded owners for UHT purposes. Detailed information about the definition of “excluded owners” is discussed below in the interpretation portion of this letter.
INTERPRETATION GIVEN
We are not in possession of all of the pertinent facts to determine whether the cottages are residential properties for UHT purposes, or to determine which of the individuals is an owner for UHT purposes for the other individuals we provide the following information to assist them.
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 “residential property”
The term “residential property” is defined in section 2 as follows:
residential property means property (other than prescribed property) that is situated in Canada and that is
(a) a detached house or similar building, containing not more than three dwelling units, together with that proportion of the appurtenances to the building and the land subjacent or immediately contiguous to the building that is reasonably necessary for its use and enjoyment as a place of residence for individuals;
(b) a part of a building that is a semi-detached house, rowhouse unit, residential condominium unit or other similar premises that is, or is intended to be, a separate parcel or other division of real or immovable property owned, or intended to be owned, apart from any other unit in the building together with that proportion of any common areas and other appurtenances to the building and the land subjacent or immediately contiguous to the building that is attributable to the house, unit or premises and that is reasonably necessary for its use and enjoyment as a place of residence for individuals; or
(c) a prescribed property.
Under paragraph (a) of the definition of “residential property,” a detached house or similar building must contain not more than three dwelling units. The CRA interprets this to mean that a detached house or similar building must contain at least one dwelling unit, but less than four dwelling units, to be brought into the scope of paragraph (a) of the definition of “residential property.”
The term “dwelling unit” is defined in section 2 as follows:
dwelling unit means a residential unit that contains private kitchen facilities, a private bath and a private living area.
For purposes of the definition of “dwelling unit,” the CRA interprets the term “residential unit” to mean a single self-contained set of rooms in a building or part of a building that is distinguished from any other such set of rooms in the building or part and that is characteristic of, and suitable as, a residence. A residential unit that does not contain private kitchen facilities, a private bath or a private living area is not a dwelling unit for UHT purposes.
As we are not in possession of all of the pertinent facts relating to the [#] cottages (for example, we do not know if each cottage contains private kitchen facilities or a private bath) we cannot make a determination as to whether any of the cottages fall within the definition of “residential property.” If each of the [#] cottages contains private kitchen facilities, a private bath and a private living area, then each of the [#] cottages may fall within paragraph (a) of the definition of “residential property.” If that is the case, then each of the [#] cottages may be a separate residential property for UHT purposes.
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.
As we are not in possession of all of the pertinent facts relating to all of the individuals in the group (for example, we do not know who among the group is identified as a legal (titled) owner in the land registration system) we cannot make a determination as to which of the individuals fall within the definition of “owner.” In terms of the [#] individuals in the group, if each of them is identified as a legal (titled) owner in respect of the Property in the land registration system, then each of the [#] individuals may fall within the definition of “owner.” If that is the case, then each of the [#] individuals is an owner for UHT purposes.
In terms of the [#] couples in the group:
* If only one individual in a particular couple is identified as a legal (titled) owner in respect of the Property in the land registration system, then only that individual may fall within the definition of “owner.” If that is the case, then only that individual may be an owner for UHT purposes.
* Conversely, if both individuals in a particular couple are identified as legal (titled) owners in respect of the Property in the land registration system, then both individuals in the couple may fall within the definition of “owner.” If that is the case, then both individuals may be owners for UHT purposes.
Consequently, depending on how the couples have registered their ownership in the land registration system, there may be as few as [#] owners or as many as [#] owners for UHT purposes.
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;
In terms of the group of [#] individuals, pursuant to paragraphs (b) and (d) of the definition of “excluded owner,” the following are examples of individuals that are excluded owners for UHT purposes:
* 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; or
* 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
* an individual who is not a citizen or permanent resident of Canada and who 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.
Individuals that are not mentioned in the above list are, by default, affected owners for UHT purposes.
As illustrated in the above list, the citizenship of an individual and the capacity in which an individual is an owner of a residential property play key roles in determining whether they are excluded owners or affected owners. Where two or more individuals are owners of a residential property, it is possible that some individuals could be excluded owners, whereas other individuals could be affected owners.
If any of the other [#] individuals in the group believe they might be an affected owner and have questions concerning how the UHT applies to their situation, they may wish to consider contacting the CRA to discuss.
Those individuals that are affected owners of the cottages on December 31 of a calendar year have to file a separate UHT return for each of the [#] cottages for the calendar year.
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. The proposed amendments to the definition of “excluded owner” would not affect you or the other individual in your couple, provided that the facts described in this letter do not change. We are including this information in case it is relevant to any of the other [#] individuals in the group.
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 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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