The confusion swirling around the implementation and scope of the federal government’s new Underused Housing Tax has resulted in a temporary reprieve from Ottawa, providing taxpayers with extra time to fully understand their compliance obligations under the new law.
The Canada Revenue Agency announced this week that the while the deadline for affected owners to file an Underused Housing Tax (UHT) return and pay any taxes owing would still be April 30th, 2023, penalties and interest under the Underused Housing Tax Act (UHTA) for the 2022 calendar year would be waived for any late-filed returns, so long as those UHT returns are filed no later than October 31st, 2023. At that point, outstanding tax, penalties and interest will apply. This de facto extension will provide affected owners with much-needed relief given the complexity of the UHT’s reporting requirements.
As we detailed in a recent post, the application of the UHT is far more broad than originally anticipated. The 1 per cent tax on the ‘specified value’ of a vacant or ‘underused’ residential property was intended to apply to properties owned in whole or in part by non-resident, non-Canadian citizens. However, individuals defined under the UHTA as ‘affected owners’ must also file an annual UHT return with the Canada Revenue Agency. As has become apparent since the legislation took effect, a significant number of these individuals are Canadian citizens and permanent residents. The category of affected owners includes:
- Canadian-controlled private corporations that own residential property, the exception being some specified Canadian corporations
- Corporations incorporated outside of Canada
- A Canadian corporation with no share capital
- Individuals engaged in a business partnership where the partners hold title to one or more residential properties
- Trusts (including those held by Canadian citizens or permanent residents) that hold residential property. In this case, the trustee(s) are considered the affected owner(s) who must complete the annual UHT declaration and pay applicable taxes. Importantly, unless all beneficiaries of a trust are considered excluded owners, UHT on the property may be owed
Non-compliance penalties could reach as much as $5,000 for individual owners and $10,000 if the owner is not an individual, plus 5 per cent of the UHT applicable in respect of the owner’s interest in the property for the calendar year, and 3 per cent of the UHT applicable in respect of the owner’s interest in the property for the calendar year for each calendar month the declaration is past due. In other words, the costs associated with non-compliance are not trivial and should be taken seriously.
While the UHT extension provides greater leeway to affected owners, it’s still best to act now to ensure compliance with the law. Some business owners and high net-worth individuals could find that they have residential properties in an entity, such as a trust or corporation, that trigger reporting or tax obligations under the Act. Identifying those properties in a portfolio could be more complex and require more time than expected.
Don’t delay. Contact your KRP partner or manager today to discuss your UHT compliance obligations and avoid unnecessary penalties or interest charges.
Armando Iannuzzi, Co-Managing Partner