Underused Housing Tax tips and tricks are going to be key. Why? Many commentators have expressed the view that the Underused Housing Tax legislation was poorly written. Because the UHT is new, we have no court guidance and relatively little feedback from the Canada Revenue Agency. This has caused confusion about whether UHT returns must be filed. And, if so, how they are to be filed. We think, given the size of the penalties and not practically having a statute of limitations, better safe than sorry: Generally speaking, file the return.
Use caution with new legislation
Exercise extreme caution with a variety of general and/or administrative comments from the CRA and others (including us!) interpreting the legislation. The legislation is very new. Many commentators believe it is poorly written. Courts have not tested the legislation because this is the first year of application. Given the significance of the penalties, consider filing to protect yourself even if you believe it may not be required. Further, much of the phrasing is general as compared to technical in nature and as such may not be what you’re expecting if you were to compare to the legislation. Or worse, if the judge was to interpret from the legislation.
Nov 2023 UPDATE: The federal government proposed significant changes to the rules for UHT filings. Significantly fewer people will now have to file the UHT returns, and they have reduced the minimum failure to file penalties. For details, please see, UHT relief may be on the horizon.
Buying opportunities
It’s not all bad news. Look for buying opportunities for foreign-owned vacation properties in higher population areas such as southern Ontario. We expect that a number of people are going to be shocked by these rules and penalties, and need/want to sell.
Adds to municipal and provincial taxes
While not necessarily part of Underused Housing Tax tips, the UHT is a federal tax ON TOP OF other municipally/provincially driven taxes such as those in BC and Ontario.
RTOs and the Underused Housing Tax
An owner of a life-long lease can include a rent-to-own given the purchase option. Thus the tenant buyer may need to file a UHT return.
File a UHT return for every property
Where applicable, returns must be filed for EVERY relevant property – thus a corporation owning 5 relevant properties, for example, cannot file one return for every property it owns but must file 5 returns.
Fair market value and the Underused Housing Tax
You have until April 30 of the following year to get a qualifying appraisal (think mortgage application variety) if you wish to use fair market value as compared to a property tax assessed value of your property.
For mixed use properties, getting a qualifying appraisal to use fair market value in allocating the value or residential vs. non-residential is of particular note.
Watch properties owned in foreign countries
Watch for your properties owned in foreign countries as we’re seeing foreign representatives threaten reciprocal retaliation for what many see as an offensive, politically-inspired cash grab.
Use caution with land registry
Be cautious of the focus on land registry systems used to determine filing requirements. The legislation and the very form itself leads to confirming and alternative potential conclusions as to who must file/which properties are subject to the filing requirements.
Two equal partners
Example 1 of UHTN4 is interesting in how it describes the filing requirements of two equal partners. The first partner is listed as the owner in the land registry system and thus has to file a return for 100% of the property (beneficial ownership appears irrelevant). Whereas the second partner, in this example, was a Canadian citizen and thus not required to file. Conceptually then, what if taxes were owing? It would appear the first partner is responsible for their taxes as well as other partners based on how the land registry purchase was recorded.
Renovation rules are tricky
Renovation rules are tricky. One example, from UHTN10, shows how harshly the CRA will interpret the renovation rules. They talk about a duplex where in the first year one unit is renovated, and the second unit in the next year. For the second year, taxes are applicable to the entire property, not just the unit that is fully renovated. Apparently, all units must be renovated quickly or at the same time to escape taxes.
Mistakes aren’t forgiven?
The statute of limitations concept does not really exist in this legislation. In one example provided by the CRA, they note that failing to file a return will never become statute barred. It would seem that mistakes are unforgivable!
Looking for more resources on the Underused Housing Tax?
Looking for more resources on the UHT after reading these Underused Housing Tax tips? See
- 8 questions answered
- Underused Housing Tax: Properties affected
- Underused Housing Tax penalties and interest waived
- Revenue Canada
- Underused Housing Tax Return and Election Form
What should real estate investors do next?
- Determine whether you need to file for your various properties.
- If you need to file, determine what, if any, exemption is available to you.
- Ensure you and your advisors know who is filing the tax returns, and leave enough time to complete!
- Ensure you file by April 30, 2023 (or this year, May 1 as April 30 falls on a Sunday).
- UPDATE: The CRA has provided relief for the UHT by waiving all filings, penalties, and interest until October 31, 2023 for 2022 UHT returns. Details on the CRA web site at: Underused Housing Tax penalties and interest waived.
- Nov 2023 UPDATE: The federal government proposed significant changes to the rules for UHT filings. Significantly fewer people will now have to file the UHT returns, and they have reduced the minimum failure to file penalties. For details, please see, UHT relief may be on the horizon.
Still have questions? I want to help you Do Wonderful Things™ with your real estate investments, so please contact me today.
