Photo by David McBee
Words by Mathew Lam
Not to be the bearer of bad news but additional compliance and filing requirements have arrived. If you are a non-resident, shareholder of a private corporation, partner of a partnership or a trustee of a trust, that owns residential properties, then you may be affected and have an annual filing requirement. Newly enacted, the Underused Housing Tax (“UHT”) applies a 1% annual tax based on the value of vacant/underused residential properties. The tax payable, along with a completed annual return would be due on April 30th of the following year. The following is a non-exhaustive list of available exemptions:
Exempted Owners [no tax or filing obligation]
- Canadian citizens;
- Permanent residents;
- Federally/provincially incorporated corporations which are listed on a Canadian stock exchange; and
- Registered charities.
Type of Owner Exemption [no tax obligation but has a filing obligation]
- Specified Canadian Corporation – On December 31st, any combination of non-Canadian citizens, non-permanent residents, corporations not incorporated or continued under the laws of Canada or a province, cannot control the corporation and must own less than 10% of the voting rights or equity value;
- Specified Canadian Partnership – On December 31st, all members are exempted owners or a specified Canadian corporation;
- Specified Canadian Trust – On December 31st, all beneficiaries with an interest in the residential property are exempted owners or a specified Canadian corporation;
- New owner in the calendar year; or
- Deceased owner, or a co-owner or personal representative of a deceased owner.
Availability of Property Exemption [no tax obligation but has q filing obligation]
- Newly constructed;
- Vacation property, in an eligible area of Canada, that is used by you or your spouse for at least 28 days in a calendar year;
- Seasonally inaccessible or not suitable it be lived in year-round; or
- Uninhabitable due to renovations, disaster, or hazardous conditions.
Occupancy of Property Exemption [no tax obligation but has q filing obligation]
- Principal residence for you, your spouse, or child who is attending a designated learning institution; or
- At least 180 days during the year, the property was occupied for no less than one month by any of the following combinations:
- a lessee with a signed rental agreement;
- a related lessee with a signed rental agreement for market value rent;
- you or your spouse while holding a Canadian work permit; or
- A Canadian citizen or permanent resident that is your spouse/common-law, parent or child.
If you fail to file a return regardless of the tax liability there are significant penalties of $5,000 for individuals and $10,000 for non-individuals . As there are many carve-outs and specific definitions to what may be considered a residential property, if you believe that the UHT or its annual filing obligation may apply to you, please contact your Farnham & Company representative so that we can help you navigate through this.