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: 246071
Dear [Clients]:
Subject: Underused housing tax (UHT) interpretation
Definition of “excluded owner”
Thank you for your correspondence of [mm/dd/yyyy], concerning your properties and whether you meet the definition of “excluded owner” for UHT purposes. 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, we understand that:
1. You […] jointly own the following […] properties in Canada: […]
* [A condominium unit that is a rental property and was occupied by a tenant
for # days during the yyyy calendar year.]
* [A detached house with two units. One unit was occupied by you for #
days during the yyyy calendar year. The other unit is occupied by a tenant for # days during the
yyyy calendar year.]
* [A detached house that is a rental property and was occupied by a tenant for # days
during the yyyy calendar year.]
2. You are both citizens of Canada, although you both reside […][outside of Canada].
3. You do not have a formal partnership agreement between you.
RULING REQUESTED
You would like to know whether you meet the definition of “excluded owner” for UHT purposes, and therefore, whether you have to file UHT returns for the […] properties. You would also like information about partnerships 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. 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 properties and the ownership of the properties, we are unable to provide a ruling.
However, we are pleased to provide an interpretation of the relevant UHTA provisions which may help you determine whether you are excluded owners for UHT purposes, and therefore, whether you have to file UHT returns for the properties. Also, we are providing additional information which might affect an individual’s UHT obligations for the 2023 and subsequent calendar years.
INTERPRETATION GIVEN
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.”
Under paragraph (b) of the definition of “residential property,” a condominium unit must be a residential condominium unit 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. The term “residential condominium unit” is not defined in the UHTA. For UHT purposes, the CRA interprets the term “residential condominium unit” to mean a bounded space in a building that is (or is intended to be) both of the following:
* designated or described as a separate unit in the building on a registered condominium or strata lot plan or description, or a similar plan or description registered under the laws of a province, and includes any interest in land pertaining to ownership of the unit; and
* a dwelling unit.
Thus, the term “dwelling unit” is important for purposes of determining whether your […] properties (that is, your […][condominium unit] and detached houses) are residential properties for UHT purposes.
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 your […] properties (for example, we do not know if each contains private kitchen facilities or a private bath) we cannot make a determination as to whether any of your properties fall within the definition of “residential property.” If each of your properties contains private kitchen facilities, a private bath and a private living area, then each of them may fall within paragraph (a) or (b) of the definition of “residential property,” as applicable. If that is the case, then each […][property] 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 the ownership of the residential properties (for example, we do not know if each of you is identified as a legal (titled) owner of each [property] in the land registration system) we cannot make a determination as to whether one or both of you fall within the definition of “owner.” You have stated that you own the […] properties jointly. If by that you mean that each of you is identified as a legal (titled) owner in respect of each [property] in the land registration system(s), then each of you may fall within the definition of “owner.” If that is the case, then each of you may be an owner of each [property] for UHT purposes. Note that it is possible for a property to have more than one owner for UHT purposes, and each owner would have to look at their own obligations.
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;
As we are not in possession of all of the pertinent facts relating to all of the ownership capacity of the […] properties (for example, we do not know whether either of you is an owner of a property in the capacity as a trustee of a trust or as a partner of a partnership) we cannot make a determination as to whether one or both of you fall within the definition of “excluded owner.” Given that each of you is a citizen of Canada, each of you would be an excluded owner of a particular residential property for UHT purposes, unless you are an owner of the particular residential property in the capacity as trustee of a trust or as partner of a partnership.
The fact each of you resides [outside of Canada] would not alter your status as an excluded owner for UHT purposes.
Whether an individual is an owner as a partner of a partnership
You requested information about partnerships for UHT purposes. For purposes of paragraph (b) of the definition of “excluded owner,” 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 that 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.
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, provided that the facts described in this letter do not change. We are including this information in case it is relevant to you.
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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