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: 246062
Dear [Client]
Subject: Underused housing tax (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:
* Scenario 1 – The legal (titled) ownership of a residential property is in the name of Individuals A and B (both individuals are citizens of Canada). Under a bare trust agreement, Individuals A and B are owners of the residential property as trustees of a bare trust and […][Company 1] (a corporation) is the beneficiary of the bare trust.
* Scenario 2 – The legal (titled) ownership of a residential property is in the names of Individuals A, B, C and D (all individuals are citizens of Canada). Under a bare trust agreement, Individual A is an owner of the residential property as a trustee of a bare trust and […][Company 2] (a corporation) is the beneficiary of the bare trust. Under a separate bare trust agreement, Individual B is an owner of the residential property as a trustee of a bare trust and […][Company 3] (a corporation) is the beneficiary of the bare trust. To be clear, Individuals A and B are owners of the residential property as trustees of the respective bare trusts. Individuals C and D are owners of the residential property as individuals in their own right.
INTERPRETATION REQUESTED
You would like to know who has to file a UHT return in each of Scenario 1 and 2.
INTERPRETATION GIVEN
The scenarios you have presented are similar, as both deal with an individual who has legal (title) ownership of a residential property in their capacity as a trustee of a bare trust. The interpretation provided below is intended to address both scenarios.
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 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 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, with respect to Scenario 1, this would capture Individuals A and B. Similarly, with respect to Scenario 2, this would capture Individuals A, B, C and D.
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. Therefore, with respect to Scenario 1, [Company1] would not be an owner for UHT purposes. Similarly, with respect to Scenario 2, neither [Company 2] nor [Company 3] would be an owner 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;
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.
With respect to Scenarios 1 and 2, Individuals A and B would be affected owners for UHT purposes because they are individuals who are citizens of Canada and who are owners of a residential property as trustees of a trust (that is, as bare trustees of a bare trust) that is not a mutual fund trust, real estate investment trust or SIFT trust for Canadian income tax purposes. However, with respect to Scenario 2, Individuals C and D would be excluded owners for UHT purposes because they are individuals who are citizens of Canada and who are not owners of a residential property as trustees of a trust or as partners of a partnership.
ADDITIONAL INFORMATION
Whether an individual is an owner as a trustee of a trust
Although Scenarios 1 and 2 state that Individuals A and B are owners of the respective residential properties as trustees of the respective bare trusts, we are including the following for your information.
For purposes of paragraph (b) of the definition of “excluded owner,” 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 an individual 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 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. We are including this information as it affects citizens and permanent residents of Canada who are owners of residential property in their capacity as a trustee of a trust or as a partner of a partnership.
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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