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: 246080
March 17, 2024
Dear [Client]:
Subject: Underused housing tax (UHT) interpretation
Existence of partnership
Thank you for your correspondence of [mm/dd/yyyy], concerning the existence of a partnership for UHT purposes. […].
All legislative references are to the Underused Housing Tax Act (UHTA) unless otherwise specified.
We understand that:
1. […][Client A] and […][Client B] are Canadian citizens.
2. [Client A] owns […][real property] located at […][Address 1] and […][Address 2], [Province X].
3. [Address 2] […] [has] a detached house, and it is [Client A] and [Client B]’s primary place of residence.
4. [Address 1] […] [has] a detached carriage house that [Client A]’s mother resides in.
5. Both [Address 1] and [Address 2] are on the same lot.
6. [Client A] and [Client B] jointly own a residential property located at […][Address 3], [Province X].
7. [Address 3] […] [has] a townhouse rented to an individual who deals at arm’s length with both owners and with whom they have a written rental agreement.
RULING REQUESTED
You would like to know:
1. Whether [Client A] and [Client B] are excluded owners for UHT purposes for both properties and would not need to file a UHT return.
2. Whether [Client A] and [Client B] are in a partnership relationship for UHT purposes.
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 individuals described in your correspondence have to file UHT returns.
INTERPRETATION GIVEN
UHT obligations
Generally, the UHTA sets out two obligations:
1. subsection 7(1) provides that a person that is, on December 31 of a calendar year, an owner of a residential property (other than an excluded owner of the residential property) is required to file a return for the 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 of a residential property (other than an excluded owner of the 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.
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.
Definition of “excluded owner”
Section 2 provides the definition of “excluded owner”. This definition was amended for the 2023 and subsequent calendar years. As such, we are separately explaining the definition of “excluded owner” for the 2022 calendar year and for the 2023 and subsequent calendar years as each period may affect owners of residential property differently.
2022 calendar year
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;
As a consequence of paragraphs (b) and (d) of the definition of “excluded owner,” the following are examples of individuals that are affected 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:
o 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
o as a partner of a partnership.
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.
For the 2022 calendar year, if you own a residential property as a partner of a partnership on December 31, 2022, then you are affected owner. As an affected owner of a residential property, you must file a UHT return for the residential property and you may have to pay the tax unless your ownership qualifies for an exemption.
For the 2022 calendar year, if you are an affected owner, your ownership may qualify for the following exemptions:
- Exemption for specified Canadian partnership: refer to UHTN4, Exemptions for Specified Canadian Partnerships, Trusts and Corporations.
- Exemption for primary place of residence: refer to UHTN6, Exemption for Primary Place of Residence.
- Exemption for qualifying occupancy: refer to UHTN7, Exemption for Qualifying Occupancy.
Please note, all Underused Housing Tax Notices can be found on the CRA’s website at Canada.ca/cra-uht
2023 and subsequent calendar years
Effective for the 2023 and subsequent calendar years, the definition of “excluded owner” has been 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:
- as an individual in their own right;
- 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; or
- as a partner of partnership that is a specified Canadian partnership.
Starting with the 2023 calendar year, a specified Canadian partnership is a partnership each member of which, on December 31 of the calendar year, is for example:
- an individual who is a citizen or permanent resident of Canada
- a specified Canadian partnership
- a specified Canadian trust
Consequently, starting with the 2023 calendar year, you would be an excluded owner of a residential property if you are an owner of the residential property in your own right or in your capacity as a partner of a specified Canadian partnership on December 31 of the calendar year. As an excluded owner of the residential property, you do not have to file a UHT return or pay the UHT for the residential property.
It’s 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 excluded owner and specified Canadian partnerships, please refer to Underused Housing Tax Notice UHTN1, Introduction to the Underused Housing Tax, which can be found on the Canada.ca website.
Whether an individual is an owner as a partner of a partnership
You requested a determination of whether a relationship is a partnership 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, of 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 said 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.
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 interpretations 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 interpretative policy could affect the interpretations or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-296-9615.
Sincerely,
Zahra Sylla
Senior Rulings Officer
Real Property - Specialty Tax Unit
Financial Institutions and Real Property Division
GST/HST Rulings Directorate
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