The filing and payment deadline for the Underused Housing Tax Act declaration is fast approaching on May 1, 2023. Do not fear if you have not or will not meet this deadline – the Canada Revenue Agency has waived penalties and interest for owners who file their returns and pay the tax by October 31, 2023. Here’s what you need to know to determine if you are obligated to file a return or pay the tax:
Last fall, I wrote about the Underused Housing Tax Act (the “Act”) in a blog titled “Use It or Get Taxed On It.” As a recap, the Act came into effect in June 2022, implementing an annual tax payable by registered Residential Property owners, other than “Excluded Owners,” equal to 1% of the fair market value or the taxable value of Residential Properties, unless specifically exempted by the Act.
Generally speaking, you are obligated to file a return and are liable for paying the tax if the following are true:
(1) the property is Residential;
(2) you are an Owner of the residential property;
(3) you are not an Excluded Owner of the residential property; and
(4) your ownership of the Residential Property is not exempt from the tax under the Act.
While it all seems rather complicated, if you own residential property in Canada, your obligation to file a return and/or pay the tax depends on whether or not you are an Excluded Owner. Fortunately, many Canadian individuals and corporations are Excluded Owners.
Excluded Owners Include:
(a) The government of Canada or a province, or an agent of the Government of Canada or a province;
(b) Citizen or permanent residents, 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;
(c) a corporation incorporated under the laws of Canada or a province whose shares are listed on a stock exchange in Canada
(d) a person that is an owner of the residential property in their capacity as a trustee of
(i) a mutual fund trust
(ii) a real estate investment trust
(iii) a SIFT trust
(e) a registered charity
(f) a cooperative housing corporation, a hospital authority, a municipality, a public college, a school authority, a university, or a para-municipal organization;
(g) an Indigenous governing body or a corporation owned by such a body; or
(h) a prescribed person.
Persons that meet the first three criteria, meaning they own residential property in Canada and are not an Excluded Owner, are referred to as “Affected Owners.” They must file a return even if an exemption in the 4th criterion exempts the Affected Owner from paying the tax.
If you were an Affected Owner of Residential Property as of December 31, 2022, you must file a return by May 1, 2023, although you will not be penalized for failing to meet this deadline in 2023 as long as the return and payments are received by October 31, 2023.
Offences and Penalties
Persons that fail to file a return or fail to comply with an obligation under the Act are guilty of an offence and subject to penalties.
Every person that is required to file a return and fails to do so is liable to pay a minimum penalty of $5000 for individuals, and $10,000 for corporations, but the penalties have potential to be much greater in certain circumstances.
There are further monetary penalties for failing to respond to demands to file a Return, failure to provide information as required under the Act, and knowingly making false statements or omissions in a Return or any related document.
For advice on whether or not you are subject to filing and/or payment obligations pursuant to the Underused Housing Tax Act, contact Lerners and we will be happy to assist you.