Words by Ana Rebro
We are often asked whether we fear our profession will be made obsolete by AI. Although some parts of our job will very likely continue to be made more efficient with the use of technology, with the bright minds leading our country’s tax system, it looks like this profession will continue to thrive heavily relying on humans for the foreseeable future.
This blog is about the new Underused Housing Tax (“UHT”), but it is also about the administrative nightmare and unrealistic compliance expectations that continue to be introduced by our government. Being a silver-lining oriented bunch, the upside of this new nugget of wisdom we call UHT appears to be indefinite job security for us, accountants, and well as decrease in unemployment rates in this country as CRA will have to somehow stuff humans into its dark windowless offices to sift through mountains of meaningless paperwork. Here is why…
The UHT was enacted on June 9, 2022, with an effective date of January 1, 2022. The original idea was that non-residents owning residential property which sits vacant would be subject to a tax based on 1% of the property’s value. This move was meant to correct the effects of foreign investment into Canada’s residential real estate market, which was supposedly inflating real estate prices across the country. Sounds like a reasonable idea, right?
Well, somehow the filing requirements blew out of proportion, so much so that it appears almost anyone owning residential real estate is affected, even if the owners are Canadian residents and would not be required to pay any tax in any event. Feels harmless, EXCEPT, if you are required to make a filing (even if no taxes are owing) and fail to do so, penalties of $5,000 – $10,000 per missed filing would apply!
We issued an earlier blog on this topic, in February of this year. It addressed the main highlights of the filing requirements and deadlines.
https://farnhamco.ca/blog/underused-housing-tax/
Since our original blog, two important things happened:
- The filing deadline for calendar 2022 was extended to October 31, 2023;
- Additional (unhelpful) clarity was provided by CRA on applicability of UHT to various taxpayer groups.
As a firm, we have made the decision to take advantage of the extension, survive tax season and jump into UHT filing awareness campaigning in the fall.
So here is the bit that explains why AI cannot take our jobs just yet. Our team looks after 2,653 client contacts (and happily counting!). Never in our history have we tracked our client database by what property they own. In other words, for us to figure out who this tax applies to, we would have to create a list purely by memory. And if someone buys a new piece of residential real estate and doesn’t tell us, we have no shot of identifying them as filers. Multiply the risk of missed filings across the client base by $5K-$10K of potential penalties, and we have the prospect of being out of business in no time. If an AI algorithm exists to solve for this, please let us know!
So what did we do? We did go through our client database and create a list of clients who we believe the filing obligations apply to. There is about a 100% chance we missed some. Over the coming couple of weeks, we will be reaching out to clients we identified as filers and giving them the option to either file on their own behalf, or engaging us to help with the filing.
If you don’t hear from us and believe you might have a requirement to file, please contact your Farnham Representative. You do have the option of filing yourself. Links to the form that can be filled out and mailed, as well as to the e-filing site are provided at the end of this blog. Regardless of how you choose to file, we ask that you still reach out to us and let us know so we can update our client database.
Before we leave you to ponder the insanity of our taxation regime, let’s review who UHT applies to:
EVERYONE who owns residential property (see below for definition), except for the following most common exclusion applicable to our client base:
- an individual who is a citizen or permanent resident of Canada, unless you are an owner of the residential property as either of the following:
- a trustee of a trust (except if you are the personal representative of a deceased individual, in which case you are an excluded owner of the residential property)
- a partner of a partnership
- a registered charity
This means that corporations, trusts, partnerships, individuals who are not citizens or permanent residents of Canada are all affected by this.
Incredibly, builders of residential properties which are substantially completed (90%) by December 31 of a calendar year are caught by this and have to file a return for each property (think condo building in occupancy phase or a sub-division where some units are substantially completed). That’s hundreds of filings! On paper! Sent by mail! What era do we live in? Who is going to go through all this paper!? Getting all worked up again!
What about bare trustee arrangements, where an individual (who otherwise would be exempt from filing), holds title to a property for the benefit of another party. They are caught!
What about husband and wife who own real estate together and declared to CRA that they are operating as a partnership when filing out their personal tax returns (not because they have an actual written partnership agreement, but because they split the rental income between them using the partnership form in their personal tax return). They are caught!
And so on, and so on…
So let’s work as a team to keep our unreasonable government content and send them whatever paperwork keeps their little hearts beating. We will do our absolute best to identify who needs to file this return, and when we miss a few properties in our portfolio, we are asking that you reach out.
Here are some helpful links and resources to help navigate the madness.
CRA Introduction to Underused Housing Tax
What is a Residential Property?
The underused housing tax applies to residential property in Canada. Generally, residential property is defined as property that is either of the following:
- a detached house or similar building that contains not more than three dwelling units, along with any appurtenances and the related land
- a semi-detached house, rowhouse unit, residential condominium unit or other similar premises, along with any common areas, appurtenance and the related land.