The Underused Housing Tax (UHT) while presented as a tax that is applicable to individuals who are not Canadian citizens or permanent residents, can also apply to Canadian citizens or permanent residents (immigration status) in certain circumstances.

All individuals who are “affected owners” must file a UHT return if they are listed on legal title of a residential property in Canada. Individuals who are Canadian citizens or permanent residents can be affected owners if they hold legal title in their capacity as a trustee of a trust or a partner in a partnership. Certain arrangements may be considered a trust even without a written trust agreement.

If your name is on legal title of a residential property but you do not have “beneficial ownership”, this may be viewed as a trust and you may be required to file a UHT return even if you are a Canadian citizen or permanent resident. A trust is not a legal entity but rather a relationship between the legal owner of the trust property and beneficial owner of the property. The CRA has provided specific guidance that the examples below would cause an individual to be an affected owner even without a written trust agreement:

1. A parent who adds an adult child on title of a property. In these circumstances, there may be no change in beneficial ownership from the parent to the child if the child is holding the property in favour of the parent and there was no intention to gift.
   
   The adult child would be required to file the UHT return as a trustee of the trust. If multiple children are added on title, each child would be obligated to file the UHT return as a trustee of a separate trust.
2. An adult child who adds a parent on title of a property to qualify for a mortgage. In these circumstances, the parent may not have contributed anything to the property and is holding the property in favour of the child.
   
   The parent would file the UHT return as a trustee of a trust.

Although a filing may be required by the parent, child or bare trustee in these circumstances, there may not be any UHT payable. If the beneficiary of the trust (parent in example 1 and child in example 2) are a Canadian citizen or permanent resident, an exemption from the UHT is available. There are also exemptions available to corporations. A return must be filed to claim the exemption. Even if an exemption is available, if the UHT return is not filed by the deadline, a minimum penalty of $1,000 for individuals and $2,000 for other owners per year can apply. These are the reduced penalties that have been proposed by the Department of Finance in the Fall Economic Update.

In addition to these examples, all corporations that are listed on legal title of a residential property are required to file a UHT return. This includes corporate bare trustees even where the corporation does not hold any beneficial ownership in the property. Canadian citizens or permanent residents who own property as partners in a partnership are also required to file for 2022.

Underused Housing Tax Penalties and Interest Waived

Canada Revenue Agency (CRA) has announced transitional relief for penalties and interest to “affected owners” for the UHT for 2022. Affected owners are required to file a UHT return. To provide more time for affected owners to take necessary actions to comply with the UHT, penalties and interest for the 2022 calendar year will be waived for any-late filed UHT return and for any late-paid UHT payable, provided the return is filed or the UHT is paid on or before April 30, 2024. CRA previously announced a waiver of penalties and interest until October 31, 2023. The relief has now been extended a second time and was announced on the October 31, 2023 extended deadline.

UHT returns for both 2022 and 2023 are now due by April 30, 2024 to avoid penalties and interest.

Underused Housing Tax Changes for 2023

The Fall Economic Update released by the Department of Finance also provides additional relief for certain property owners under the UHT rules. In particular, specified Canadian corporations, partners of specified Canadian partnerships, and trustees of specified Canadian trusts will not have a filing obligation under the UHT rules starting with the 2023 filing year. UHT returns are still required for 2022 by April 30, 2024 if they have not already been filed for these entities.

A specified Canadian corporation is a generally a corporation that is incorporated or continued under the laws of Canada or a province, and on December 31st of the calendar year has less than 10% of the votes or value owned by individuals who are not Canadian citizens or permanent residents, or a corporation incorporated outside Canada, or a combination of those individuals and corporations.

The legislation relating to UHT late filing penalties and UHT return filing obligations has not yet received royal assent. Finance released draft legislation and regulations for these measures and has requested stakeholder feedback by January 3, 2024.

Trust Filing and Disclosure Requirements

Much like the multiple deadline changes for the UHT reporting, the CRA has continued to delay the “new” trust filing and disclosure requirements. Almost all trusts will now be required to file an annual trust income tax return and provide information on settlors, beneficiaries, trustees and those that can exert control over the trust. The trust filing and disclosure requirements are slated to come into force starting with the 2023 tax year. Tax returns and disclosure forms are due 90 days after the year end of the trust. For almost all trusts the first tax return and disclosure forms will need to be filed by March 30, 2024.

We had previously provided information relating to these disclosure requirements but wanted to remind clients of their obligations, particularly in circumstances where a trust may exist without a written trust agreement. Included below are some examples of arrangements that could be considered a trust which would be required to file an annual trust income tax return beginning with the 2023 tax year:

1. A parent who adds an adult child on title of a property. In these circumstances, there may be no change in beneficial ownership from the parent to the child if the child is holding the property in favour of the parent and there was no intention to gift.
2. An adult child who adds a parent on title of a property to qualify for a mortgage. In these circumstances, the parent may not have contributed anything to the property and is holding the property in favour of the child.
3. Bare trustee arrangements where the legal title owner of property does not also hold beneficial ownership.
4. Shares of private corporations held “in trust” by a parent or other individual. These arrangements are common where minor children are shareholders in private corporations, particularly professional corporations where only individuals are permitted as shareholders.
5. Bank or investment accounts held “in trust” by a parent or other individual. These accounts may have been created to hold funds of a minor child.

Even if there was no activity in the trust for the year, if the trust income tax return is not filed by the deadline, a penalty of up to $2,500 or 5% of the trust assets per year can apply.

The Way Forward

If any of the scenarios outlined above apply to you, please reach out to your contact at Hendry Warren to discuss your filing obligations. Penalties for non-compliance are significant.