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: 247032
March 17, 2024
Dear [Client]:
Subject: Underused housing tax (UHT) interpretation
Definition of “residential property”
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the definition of “residential property,” for UHT purposes, to your property. […].
All legislative references are to the Underused Housing Tax Act (UHTA) unless otherwise specified.
We understand that:
1. […](the Owners) are […][foreign] nationals.
2. They own in fee simple a condominium unit with the municipal address of […] (the Unit).
3. The Unit is a separate parcel of real property with the parcel identifier […].
4. The Unit has a private kitchen, two private bathrooms and a private living area.
5. The Unit is located in the […] (the Building). The Building has [#] residential condominiums units, holds a front desk and provides housekeeping services.
6. The Building is located in […] (the Municipality) and is subject to restrictions under […][legislative provision].
7. A […] [covenant] is a charge secured against the title to a property […] to impose an obligation on the property owner, as per […][legislative provision].
8. You have provided a copy of […](the Covenant) between […][the Corporation] and the Municipality.
9. [The Corporation] is the building operator.
10. […]
11. Section […] of the Covenant provides that all units shall be listed with a rental booking system approved by [the Corporation], under which the units will at all times be made available for rental to the public except when the unit owner may use the unit for seasonal residential use or time share accommodation use.
12. By virtue of the Covenant, a […] agreement must be entered into and must be between each unit owner and the […] manager. You have provided a copy of the […](the Agreement).
13. The […] manager is [… ](the Manager).
14. Under section […] of the Agreement, the Manager is responsible for providing the check in/check out, cleaning and other services to the Unit.
15. Section […] of the Agreement provides that the owner cannot undertake significant renovations to the Unit without prior approval of the Manager.
16. Under section […] of the Agreement the owner acknowledges that the development is intended to be operated as a high-quality condominium. As such in the interest of providing a uniform standard service, the Unit must meet certain minimum standards of furnishings, equipment and cleanliness. Those standards shall be determined by the Manager.
17. Section […] of the Agreement provides that an owner of a unit can only stay in his or her unit by reserving it for personal use […].
18. Section […] of the Agreement provides that the owner cannot charge rent or accept any form of consideration for the use of the Unit except in accordance with the Agreement.
19. The Unit was made available for use by members of the public for an average of […]% of the time over the last [#] years.
20. In the 2022 calendar year, the Owners used the Unit for less than 28 days.
21. The Unit is considered as residential for the purposes of property tax payable to the Municipality.
22. […].
23. The letting of the Unit is treated as a business for GST/HST purposes, and the owners file GST/HST returns accordingly.
RULING REQUESTED
You would like to know whether the Unit as currently configured and operated meets the definition of “residential property” for UHT purposes and consequently whether the Unit is subject to UHT.
RULING GIVEN
Based on the facts set out above, we rule that the Unit constitutes a residential property for UHT purposes under paragraph (b) of that definition.
EXPLANATION
As affected owners of a residential property on December 31 of a calendar year, each of you will have to file and pay the UHT for your share of the Unit for the calendar year, unless your ownership of the residential property is exempt from the tax for the calendar year.
Definition of “residential property” and “dwelling unit”
Section 2 of the UHTA defines “residential property” as 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.
Paragraph (b) of the definition of “residential property” includes a property that is a part of a building that is a semi-detached house, rowhouse unit, residential condominium unit or other similar premises. These parts of the building are separate parcels or other divisions of real or immovable property. Put differently, paragraph (b) applies where a person owns any parts in the building separately under distinct legal titles, but it does not apply where the person owns the building as a whole under one legal title.
Based on the facts, the Unit is a “part of a building that is a semi-detached house, rowhouse unit, residential condominium unit or other similar premises” and as such falls under the scope of paragraph (b) of the definition of residential property for UHT purposes.
You mentioned in your facts GST/HST Policy Statement P-099, The Meaning of “Hotel”, “Motel”, “Inn”, “Boarding House”, “Lodging House” and “Other Similar Premises”. This Policy Statement clarifies the meanings of certain terms for the Excise Tax Act. The UHTA and the Excise Tax Act are independent statutes. As such, this Policy Statement does not apply for UHT purposes.
The use of a residential property
The definition of “residential property” does not contain a use test with respect to a building or part of a building, or with respect to any unit that makes up the building or part. Put differently, residential “use” of a property is not a pre-condition that must be met in order for a building or part of a building to be brought within the scope of paragraph (a) or (b) of the definition of “residential property”. Further, since no use test is contained in the definition of “residential property”, any restrictions imposed with respect to the use of a building or part of a building, or with respect to any unit that makes up the building or part, whether imposed by contract or law, are immaterial for the purposes of determining whether the building or part is brought within the scope of paragraph (a) or (b) of the definition of “residential property”.
It is the property’s physical characteristics and suitability as a residence that are factors in bringing a building or part of a building within the scope of paragraph (a) or (b) of the definition of “residential property.” Accordingly, any restrictions imposed with respect to the use of the Unit such as those imposed by the Covenant or the Agreement are immaterial for purposes of determining whether the Unit is brought within the scope of the paragraph (b) of the definition of “residential property.”
Exemption for vacation properties
Please note that, although you are an affected owner, your ownership of the residential property may be exempt from the UHT for a calendar year if your ownership qualifies for an exemption.
Pursuant to paragraph 6(7)(m) of the UHTA and subsections 2(2) and 2(3) of the Underused Housing Tax Regulations, the ownership of the residential property is exempt from the UHT for the calendar year if both of the following conditions are met:
- based on the last census by Statistics Canada before the calendar year, the residential property is located in an eligible area of Canada
- the owner, or their spouse or common-law partner, personally use the residential property as a place of residence or lodging for at least 28 days in the calendar year
Consequently, affected owners who are individual and who would meet those two conditions would have to file a UHT return for the property for the calendar year but would not have to pay the tax.
For 2024 and subsequent calendar years, if an owner or their spouse or common-law partner own more than one eligible vacation property in Canada, both can claim the exemption for vacation property only in respect of one residential property.
The Canada Revenue Agency (CRA) has developed the “Underused housing tax vacation property designation tool”, which is an online tool that will help you determine if your residential property is located in an eligible area of Canada for the purposes of this exemption. It is important for you to perform this verification each year before claiming the exemption for vacation properties on your return.
For more information on this exemption, and to find a link to the vacation property designation tool, refer to UHTN5, Exemption for Vacation Properties which can be found on the CRA’s website at Canada.ca/cra-uht.
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 given in this letter provided that: none of the issues discussed in the ruling are currently under audit, objection, or appeal; no future changes to the UHTA, regulations or the CRA interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
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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