If it moves, tax it. If it’s still moving, then tax it some more. 

But what happens when it doesn’t move – like residential property?  Tax it even more.  If you’re not a citizen or permanent resident of Canada and you own residential property in Canada, this article is for you, as we focus on the impact that Canada’s latest tax on under-utilized or vacant housing may have on you and anyone that co-owns that property.

Underused Housing Tax (“UHT”) Background

Canada imposes several taxes on residential property, such as property taxes, certain provincial property transfer taxes and even municipal/city level “empty homes taxes”, which all affect the cost of ownership of residential properties when the property’s “under-used” or vacant.  This new tax is a national tax that’s intended to accomplish the same government policy goals as the similar existing municipal or provincial-level taxes.

The Federal government added the UHT to attempt to cool off certain housing markets in Canada further, create a more robust and plentiful inventory of affordable rental housing, and even discourage certain types of foreign ownership.  Not coincidentally, the timing of this new tax comes while Canada has implemented a temporary two-year ban on non-residents purchasing residential property in the country, with some exceptions to the ban for international students, certain foreign works, diplomats, refugees, etc. and those working towards their permanent residency.  

The UHT was intended to apply to individuals who were not Canadian citizens or permanent residents, and to foreign corporations. However, in the final enacted version of the legislation also applies to Canadian private corporations, as well as certain partnerships and trusts.  Here, you can read our blog on the UHT’s impact on certain Canadian citizens/permanent residents and companies.  In this article, we focus on the UHT’s impact on individuals who are not Canadian citizens or permanent residents, called Affected Owners. 

UHT reporting and tax payment obligations of Affected Owners

If you own Canadian residential property located in Canada (including certain AirB&B or VRBO properties that are “under-used”) personally or jointly with a family member or other owner and you are not a Canadian citizen or permanent resident, this new tax regime generally applies to you and any co-owners, subject to any available exemptions.  As an Affected Owner, you must file an annual return for each Canadian residential property and pay any applicable tax by April 30 of the following calendar year – starting with 2022.  For 2022, the return due date and any tax due falls on Monday, May 1, 2023. 

The UHT legislation  defines an Affected Owner as follows:

  1. an individual who is not a Canadian citizen or permanent resident;
  2. an individual who is a Canadian citizen or permanent resident and who owns a residential property as a trustee of a trust (other than as a personal representative of a deceased person);
  3. any person, including an individual who is a Canadian citizen or permanent resident – who owns a residential property as a partner of a partnership;
  4. a corporation that is incorporated outside Canada;
  5. a Canadian corporation whose shares are not listed on a Canadian stock exchange designated for Canadian income tax purposes ie, a Canadian private corporation; and
  6. a Canadian corporation without share capital.

If you, or a foreign corporation, are required to file a return, you may be eligible for exemptions from payment of the tax depending on the type of owner (e.g. an individual vs. a corporation vs. a partnership), the location, use and availability of the property and who the occupant(s) of the property are.  However, even if there is no tax to pay due to an exemption, a UHT return must still be filed, and the exemption claimed.  Failing to file the new return when due, even if no tax is payable, can result in a “minimum” $5,000 penalty for individuals and a minimum penalty of $10,000 for corporations.

To file the annual UHT return and remit any tax owing, individuals and foreign corporations considered to be Affected Persons must possess either a Canadian Social Insurance Number (“SIN”), an individual tax number (“ITN”) or a Canadian business number with a UHT account suffix. In other words, most non-resident individuals who do not have a SIN will need to use their ITN or apply for one, which could take some time to process.  Foreign corporations must apply for a federal business number and have a UHT account added to that number. It will take extra time to process these applications, so being prepared now is important, with only two months until the deadline as of writing this.

Once they’ve taken these steps, Affected Persons can file the annual UHT return for the prior calendar year reporting period.  UHT returns can be filed by mail through one of two main CRA tax centres and should soon be able to be filed electronically.  Generally, the Winnipeg Tax Centre will handle Affected owners residing in the United States, United Kingdom, France, The Netherlands or Denmark, while the Sudbury Tax Centre will handle any other countries that affected owners reside or are incorporated in.

Claiming UHT exemptions for Affected Persons

If you are an owner type of one of the following “persons”,  you have an an exemption from payment of the tax, but must file the annual return for each residential property owned at December 31 of each calendar reporting year, to claim the exemption

  1. a specified Canadian corporation;
  2. a partner of a specified Canadian partnership, or a trustee of a specified Canadian trust;
  3. a new owner in the calendar year; or
  4. a deceased owner, or a co-owner or personal representative of a deceased owner

There may also be an exemption from the tax if:

  1. the property is newly constructed;
  2. the property is not suitable to be lived in year-round, or seasonally inaccessible; or
  3. the property is uninhabitable for a certain number of days because of a disaster or hazardous conditions or renovations, among others.

As an Affected Owner, you may have an exemption available if you, your spouse or common-law partner, or your foreign corporation own a vacation property in certain areas of Canada – an “eligible area” available for your personal use for at least 28 days during the calendar year. 

You can check this link:  UHT vacation property designation tool ) by inputting the postal code where the vacation property is located to determine if it is in an “eligible area.”

 

Reach out if you have any questions about this new tax legislation. We are happy to help.

 

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