Underused Housing Tax Act

Need for private facilities (paras. 1.24, 1.35, 1.36)

• Boarding or lodging houses are not considered to be dwelling units due to the lack of “separate and self-contained sets of private living quarters.”
• Similarly, for dormitory quarters for foreign farm workers - but not if they are all put into a detached home that had been designed to service as a detached residence.

Deceased individual can be excluded owner (para.12.1)

• Given the implication of s. 6(7)(h) that a deceased individual still shown on title is a person, such person can also qualify as an “excluded owner.”

Meaning of “could reasonably be considered to be an owner” (para. 1.14)

• The reference to “could reasonably be considered to be an owner” does not include the beneficiaries of a trust.
• This phrase could apply based on the wording of a deed in a province using a deed-registration, rather than land titles, system.

Two (apparent) joint tenants deemed to each have a 50% ownership percentage

Example 3

• E and F (each not a citizen or permanent resident) are spouses and (apparently) joint tenants.
• Since the registered title does not indicate their percentage ownership, they are deemed to each have an “ownership percentage” of 50% under the term’s definition.

Focus on purpose of construction (para. 1.25)

• Commercial cottages, cabins and chalets situated on one lot are not considered to be residential properties - they “were purposely constructed or converted to be something other than a residence.”
• Cottages built on separate lots qualify under para. (a) because they were “purposely constructed or converted to be a separate and self-contained set of private living quarters” – even though their use may be diverted to provide transient accommodation.

Exclusion of mobile homes (paras. 1.28, 1.34)

• Floating homes, mobile homes and park model trailers are not buildings and, thus, not residential properties.

Not a residential property prior to substantial completion (para. 1.30, 1.31)

• For purposes of both (a) and (b) of the definition, CRA considers that a property in construction does not become a residential property until “construction of the property is substantially completed (generally 90% or more) so that an individual could reasonably inhabit the property” – so that there is no reporting obligation for the property if on December 31 it has not yet become a residential property.
• In particular, although a bounded space that is intended to be a separate unit, in a building that will be severed into separately-owned condominium units under a registered plan, for use as a dwelling unit constitutes a residential condominium unit, it must be substantially completed by December 31 for the builder to have a reporting obligation.

Corporation owned by citizens and holding title to condo must file return for the property

Example 3

• Individuals D and E own all the shares of a corporation that acquired title to a residential condo unit in 2018. The corporation must file a return for 2022, but has no tax payable because shares representing more than 90% of its equity and carrying more than 90% of the voting rights are held by Canadian citizens.

Citizen holding title to partnership property of Canadian-citizen partnership must file return for each property

Example 1

• Since 2018, there has been a partnership of two Canadian citizens (A and B) with only A on registered title as the owner of the property.
• A is an affected owner through A’s ownership as a partner.
• A must file a return for the 2022 year but does not have to pay housing tax for A’s 100% ownership percentage because the partnership is a specified Canadian partnership.
• B is an excluded owner because B is a citizen not owning the property as a partner or trustee.

Bare trust can be a specified Canadian trust (para. 1.18)

• A corporation holding title to a residential property in Canada as bare trustee would be required to file a return, but its holding may be exempted if the trust is a specified Canadian trust.

Beneficiaries do not include contingent beneficiaries (para. 4.2)

• The reference to beneficiary does not include any contingent beneficiary of the trust (being “a person who may or will benefit if a primary beneficiary dies or otherwise loses rights as beneficiary”).

Look through trust beneficiary to its beneficiaries (para. 4.4)

• As a trust is not a person for UHT purposes, it is likely that where a trust is a beneficiary of another trust, the beneficiaries of the first trust are to be treated as beneficiaries of the second trust.

Citizen holding title to house held in trust for Canadian-citizen beneficiaries must file return

Example 2

• In 2018, two citizen spouses transferred their jointly owned property (a house) to a family trust of which Individual C is the trustee, holding registered title, and their citizen children are the beneficiaries.
• Since C owns as trustee, C must file a return for the 2022 year – but does not have to pay tax for C’s 100% ownership interest because C owns the property solely as the trustee of a specified Canadian trust.
• Corporation owned by citizens and holding title to condo must file return for the property

Assessed value used even where excess land (para. 2.1)

• Where, for example, the assessed value of a 10 hectare plot of land reflects the value of land (9.5 hectares) that is not necessary for the use of the house on the land as a residence, the taxable value of that property nonetheless is based on that assessed value, unless an election is made to use the FMV of the residential property (which generally would only include the ½ hectare).

Allocation of assessed value (para. 2.2)

• The assessed value might be allocated between a detached house and a laneway house based on interior floor space (or some other method appropriate in the circumstances).

Assessed value should be used if higher than value to which property tax is applied

Assessed value established by an authority …

A property assessment notice (or similar document) and a property tax bill are generally two separate and distinct documents. However, in some parts of Canada, the property assessment notice and the property tax bill may form one single document.

The assessed value of the residential property, as established by the authority, may not necessarily be the same as the value used by the municipality to calculate the property tax. In some parts of Canada, the property tax may be calculated on only part of the assessed value established by the authority.

To determine the taxable value of the residential property for a calendar year for purposes of the underused housing tax, use the full assessed value as established by an authority and as stated in the property assessment notice (or similar document).

Application of GST/HST policy on meaning of continuous occupancy

What is continuous occupancy

The CRA has guidelines and criteria under the goods and services tax/harmonized sales tax (GST/HST) to determine whether an individual has continuous occupancy of real property. The CRA intends to use similar guidelines and criteria for the underused housing tax.

Generally, if an individual has the right to occupy a dwelling unit for a period on a continuous basis (that is, without interruption throughout the period), the individual has continuous occupancy of the dwelling unit for the period. An individual’s continuous occupancy of the dwelling unit for a period is not necessarily interrupted by the individual’s physical absence from the dwelling unit at a time in the period if both of the following apply:

• the individual still has the right to occupy the dwelling unit throughout their physical absence
• the right to occupy the dwelling unit is not given to another individual for any period during the physical absence

Tests varying on whether an individual owner and whether a written lease

No day can be counted more than once

As explained above, if you are an affected owner that:

• is an individual, you can determine if there is a qualifying occupancy period for your ownership of a residential property as explained under one of the following headings:
  
  • Type 1 qualifying occupants – individuals having agreements evidenced in writing
  • Type 2 qualifying occupants – individual owners and their family
• is not an individual (such as a corporation), you can determine if there is a qualifying occupancy period for your ownership of a residential property only under the heading Type 1 qualifying occupants – individuals having agreements evidenced in writing

In either case, your ownership of the residential property does not qualify for the exemption for qualifying occupancy unless at least 180 days in a calendar year are included in one or more qualifying occupancy periods for your ownership of the residential property.

You cannot count a day more than once to determine if at least 180 days in a calendar year are included in one or more qualifying occupancy periods of a residential property.

Determination of primary place of residence

What is a primary place of residence

The CRA has guidelines and criteria under the goods and services tax/harmonized sales tax (GST/HST) to determine whether an individual’s residence is their primary place of residence. Similar guidelines and criteria may be used for the underused housing tax.

Generally, if you have more than one place of residence, the place of residence that is first in order of importance to you is your primary place of residence. A place of residence that is not first in order of importance to you is a secondary place of residence. For example, a secondary place of residence may be one that is used mainly for recreational purposes or that is occupied less often than another residence. If you are not a citizen or a permanent resident of Canada and your primary place of residence is outside Canada, any residential property that you own in Canada is generally considered to be a secondary place of residence, unless you can prove otherwise.

Example 1

• Re shift of primary residence to Halifax where 3-year work posting there (with offshore house leased out for this period).

Example 2

• Re parents with a primary residence outside Canada having a jointly-owned condo in Canada qualifying as a primary residence through their university-student child.

How to determine if the special rule applies to you

The special rule applies to you for a calendar year if, on December 31 of the calendar year, all of the following conditions are met:

• you are an owner of a particular residential property
• you are an individual who is not a citizen or permanent resident of Canada
• either (or both) of the following apply:
  
  • you are an owner of one or more other residential properties
  • your spouse or common-law partner is not a citizen or permanent resident of Canada and is an owner of one or more other residential properties

What happens if the special rule applies to you

Impact on the exemption for primary place of residence

If the special rule applies to you for a calendar year, the exemption for primary place of residence generally cannot be claimed by you (or by your spouse or common-law partner who is not a citizen or permanent resident of Canada) for any of your residential properties for the calendar year, unless a valid election is filed with the Canada Revenue Agency (CRA). This includes any residential property in which a dwelling unit is occupied by your child (or your spouse’s or common-law partner’s child) while pursuing authorized study at a designated learning institution.

For more information, refer to the Election required to qualify for exemptions section in this notice.

Impact on the exemption for qualifying occupancy (for certain Type 2 qualifying occupants)

If the special rule applies to you for a calendar year, the exemption for qualifying occupancy generally cannot be claimed by you (or by your spouse or common-law partner who is not a citizen or permanent resident of Canada) for your (or your spouse’s or common-law partner’s) personal occupancy of any of your residential properties for the calendar year, unless a valid election is filed with the CRA. In the absence of a valid election, this means that for every residential property of which you (or your spouse or common-law partner) are an owner, a qualifying occupancy period for your ownership of the residential property does not include any period in the calendar year during which either of the following applies:

• you (or your spouse or common-law partner) have continuous occupancy of a dwelling unit while pursuing authorized work under a Canadian work permit
• your spouse or common-law partner, who is a citizen or permanent resident of Canada, has continuous occupancy of a dwelling unit

It is only your (and your spouse’s or common-law partner’s) personal occupancy that is excluded under the special rule. The special rule has no impact on whether a period during which another Type 2 qualifying occupant (such as your parent or child who is a citizen or permanent resident of Canada) has continuous occupancy of a dwelling unit is a qualifying occupancy period for your ownership of a residential property.

However, it is possible that your (or your spouse’s or common-law partner’s) personal occupancy of a dwelling unit may still be considered for the exemption for qualifying occupancy (that is, for Type 2 qualifying occupants).

No requirement to complete assessed value if exemption applies and return is filed on time or no more than 8 months late (para. 3.1)

• A person is not required to report amounts on Line 280 (assessed value of the residential property) and Line 285 (most recent sale price) of Form UHT-2900 for a residential property for a calendar year in situations where:
  • no tax is payable in respect of the residential property for the calendar year due to the person’s ownership of the residential property being exempt from the UHT for the calendar year; and
  • the person files the return by December 31 of the following calendar year (for example, the return for the 2022 calendar year is filed by December 31, 2023).

Need claim only 1 exemption (paras. 3.2, 3.3)

• When filing a return, an owner need only claim one out of a number of applicable exemptions – although, in light of s. 47(2), the exemptions in s. 6(7)(c) to (f) may be considered less desirable.

Separate return for each property (para. 3.4)

• An affected owner of multiple residential properties on December 31 must file a separate return for each property rather than filing a single UHT return and attaching a spreadsheet.

Registered owner until sale reflected on title (para. 3.5)

• Where the closing of a sale occurs in late December and the documents for transfer of the registered title are submitted at that time, but not processed by the provincial land titles office until the next year, such affected owner is considered to still be the owner on December 31 and must file a return and pay tax if not exempted.

Electronic signature (para. 3.6)

• Handwritten signatures, block signatures and electronic signatures are all acceptable on UHT returns.

Requirement to obtain UHTA clearance certificate before an executor makes a distribution

Clearance certificates

The representative of a deceased individual’s estate must obtain a clearance certificate from the Canada Revenue Agency (CRA) before the representative distributes any property belonging to the estate.

Generally, a clearance certificate confirms that all amounts of the underused housing tax and any other amounts (such as penalties and interest) that are payable by the deceased individual and by the representative, have been paid at the time the certificate is issued.

If a representative distributes property belonging to the estate before obtaining a clearance certificate from the CRA, the representative may be personally liable for paying any outstanding amounts.

Failure of non-excluded owner to file generates penalty even where property is exempted

Reminders

Even if your ownership of a residential property is exempt from the underused housing tax for a calendar year, as an affected owner, of a residential property on December 31 of a calendar year, you still have to file a return for the residential property using Form UHT-2900, Underused Housing Tax Return and Election Form.

There are significant penalties if you fail to file an annual return when it is due. Affected owners who are individuals are subject to a minimum penalty of $5,000. Affected owners that are corporations are subject to a minimum penalty of $10,000.

S. 47(1) penalty

Failure to file your return by April 30 of the following calendar year

If you fail to file your return for a residential property for a calendar year by April 30 of the following calendar year, you have to pay a penalty that is the greater of the two following amounts:

• $5,000 for affected owners who are individuals or $10,000 for affected owners that are not individuals (such as corporations)
• the amount that is the total of the following:
  
  • 5% of your underused housing tax payable for the residential property for the calendar year
  • 3% of your underused housing tax payable for the residential property for the calendar year multiplied by the number of complete calendar months that the return is past due

Additional S. 47(2) penalty

Failure to file your return by December 31 of the following calendar year

If you fail to file your return for a residential property for a calendar year by December 31 of the following calendar year, there is an adjustment to the penalty calculation that could result in even higher penalties. The adjustment is applicable only to affected owners that claimed one of the following exemptions for the calendar year:

• exemption for properties that cannot be used throughout the year (that is, the residential property is not suitable for year-round use as a place of residence or is seasonally inaccessible because public access is not maintained year-round)
• exemption for uninhabitable properties (that is, the residential property is uninhabitable due to a disaster, hazardous condition or renovation)
• exemption for primary place of residence
• exemption for qualifying occupancy

If you fail to file your return for a residential property for a calendar year by December 31 of the following calendar year, the second amount in the penalty calculation (that is, the total of the two percentages applied to the underused housing tax payable, as described in the Failure to file your return by April 30 of the following calendar year section of this notice) is calculated as if the above exemptions do not apply.

Therefore, while you may not be liable for an amount of underused housing tax in respect of a residential property for a calendar year because you have qualified for one of the above exemptions, the penalty for failing to file a return by December 31 of the following calendar year is calculated based on the amount of underused housing tax that would have been payable in the absence of the exemption.

CRA announced:

… CRA … understands that there are unique challenges for affected owners in the first year of the Underused Housing Tax Act (UHTA) administration.

To provide more time for affected owners to take necessary actions to comply, the Minister of National Revenue is providing transitional relief to affected owners. The application of penalties and interest under the UHTA for the 2022 calendar year will be waived for any late-filed underused housing tax (UHT) return and for any late-paid UHT payable, provided the return is filed or the UHT is paid by October 31, 2023.

This transitional relief means that although the deadline for filing the UHT return and paying the UHT payable is still April 30, 2023, no penalties or interest will be applied for UHT returns and payments that the CRA receives before November 1, 2023.