CRA notes onerous property-by-property reporting requirements under the Underused Housing Tax Act

CRA has issued a series of Notices regarding the Underused Housing Tax Act, dealing mostly with basic topics. A number of the points made in the first five Notices relate to a potentially onerous requirement to file returns even where there is no tax payable.

A Canadian corporation (whose shares are unlisted) generally will not qualify as an “excluded owner” so that it will be required to file a return for 2022 and subsequent years for each “residential property” (such as a detached house, townhouse or condo unit) whose registered title it held on December 31 of the year, even if it was exempted from the tax on the basis of being a “specified Canadian corporation” (referencing the requisite “direct or indirect” ownership or control by Canadian citizens or permanent residents) or on the basis of the properties themselves satisfying one of the various exemptions (e.g. for very recent construction).

The stated penalty for not filing a return for a year (including 2022) by the April 30 deadline is stated to be a minimum of $5,000 for an individual and $10,000 for any other person. Thus, a nominee for a developer holding 100 recently-constructed condo units in inventory on December 31, 2022 apparently would be subject to a minimum penalty of $1,000,000 for failure to file nil returns by May 1, 2023. Each return is 6 pages long plus 3 pages of instructions.

The penalty is calculated as the greater of the above minimum and percentages (increasing with the degree of lateness) of the tax owing. If the returns are not filed until after December 31 of the following year, the penalty for these purposes is computed ignoring any available exemption under ss. 6(7)(c) to (f), e.g., the exemptions for seasonal residences or for residences that were uninhabitable for at least 120 days in the year due to renovation work.

CRA does not acknowledge any due diligence or other defences to the penalty.

Similar issues arise where properties are held by a partner or trustee.

Neal Armstrong. Summary of Underused Housing Tax Notice UHTN2 “Calculating the Underused Housing Tax Payable” under UHTA, s. 47(2), summaries of UHTN4 “Exemptions for Specified Canadian Partnerships, Trusts and Corporations” under UHTA, s. 2 - Specified Canadian Partnership, Specified Canadian Trust and Specified Canadian Corporation and summary of UHTN5 “Exemption for Vacation Properties” under Underused Housing Tax Regulations, s. 2(2).