We list below some instances where Underused Housing Tax (“UHT”) returns would be required to be filed which may not be visible to your accountant. If any of these apply to you, please contact your TZR advisor as soon as possible.
Although the UHT would not be payable by most taxpayers due to various exemptions, there are many instances where UHT returns must nevertheless be filed including ones where all the owners are Canadian. Failure to file UHT returns even where no UHT is payable would result in penalties starting at $5,000 or $10,000 for each return not filed, with the precise amount depending on the nature of the non-compliant owner. Where a property has multiple owners that are required to file UHT returns, each non-compliant owner would be subject to the aforementioned penalties.
Trap 1 – Two or more individuals are identified in a provincial land registration system as joint owners of a residential property located in Canada. Originally, there may have been a single owner of the property, but a person(s) such as a spouse or child may have been added on title for estate planning purposes. Does each individual have to file a UHT return for the residential property?
This situation would typically create UHT filing requirements for the persons that were added on title because the original owner typically retains 100% beneficial ownership, and the others are merely added on title so that the property can pass to them without attracting estate administration/probate tax. In such a case, because the persons added have no beneficial interest in the property, they are considered to hold title “in trust” for the beneficial owner thus causing UHT filing requirements for them.
The original single owner in the above case would not have to file a UHT return provided they are a citizen or permanent resident of Canada.
Trap 2 – Two or more individuals are identified in a provincial land registration system as joint owners of a property located in Canada. The beneficial ownership of the property does not rest with all the owners, because at least one owner was added on title merely for mortgage purposes. For example, this may be the case where a parent was added on title of their child’s property so that the child could obtain a mortgage. Does each individual have to file a UHT return for the residential property?
This situation would typically create UHT filing requirements for the person(s) that was added on title merely for mortgage purposes. This is because such a person typically retains no beneficial ownership of the property and thus is considered to hold title in trust for its beneficial owner(s). On the other hand, the beneficial owner(s) is typically not required to file a UHT return provided they are a citizen or permanent resident of Canada.
In the above example, the parent would have to file a UHT return, but the child would not provided that the child is a citizen or permanent resident of Canada.
Trap 3 – A corporation is acting as a bare trustee for an individual beneficial owner of a residential property located in Canada and the corporation is the entity identified as the owner in the land registration system. Does the corporation and the individual have to file UHT returns for the residential property?
The beneficial owner in this case would not be an owner for UHT purposes and thus would not be required to file a UHT return given that the individual is not listed in the land registration system. However, the bare trustee corporation would be required to file a UHT return given that the corporation would be holding the property in trust for the beneficial owner.
Trap 4 – A parent is the lone person identified in the land registration system for a residential property located in Canada but is holding the property through an in-trust arrangement for a child who is the beneficial owner. Do both the parent and child have to file UHT returns for the residential property?
As is the case for Trap 3, the child beneficial owner in this case would not be an owner for UHT purposes and thus would not be required to file a UHT return given that the individual is not listed in the land registration system. However, the parent would be required to file a UHT return given that the parent would be holding the property in trust for the child.
Trap 5 – A formal trust owns a residential property located in Canada.
The trust in this case would be required to file a UHT tax return. This scenario may not be identifiable by your accountant where the trust is not required to file an annual T3 trust tax return, which, for example, may have been the case where the property is not income-generating like a family cottage.
Trap 6 – An individual is neither a citizen nor permanent resident of Canada and owns a non-income generating residential property in Canada.
The individual would be required to file a UHT tax return. This scenario may not be identifiable by your accountant as they may be unaware of your immigration status and/or of the existence of the property.
In summary, wherever there is a person(s) on title of a residential property in Canada and that person(s) does not have a beneficial interest in the property, UHT return(s) would need to be filed. Some of these situations are captured in the above examples which, again, may not be visible to your accountant. If any of these arrangements apply to you, please notify your TZR advisor as soon as possible and provide them with the property tax assessment of the residential property to ensure timely filing of the UHT returns.
The above content is for informational purposes only and is general in nature. It is not intended to be advice. No person or entity should act upon the information above without receiving professional advice after all the facts and circumstances specific to their situation are thoroughly reviewed.