At Genesa Corp, we're always at the forefront of fiscal updates that matter to our clients. One of the most significant introductions recently has been the Underused Housing Tax, often referred to as the UHT, launched by the Federal Government. Effective from January 01, 2022, this tax directly impacts owners of vacant properties across Canada. At Genesa Corp, our commitment is not just to keep you informed, but to guide you in navigating these regulations efficiently. Your growth is our mission. Here's what residential property owners need to know when navigating these new regulations.
Underused Housing Tax Return Service
At Genesa Corp, we understand the complexities of managing a residential property in Canada, especially with the introduction of the Underused Housing Tax (UHT). Our dedicated team offers a specialized UHT service designed to assist property owners, from Canadian corporations to individual affected owners, in navigating their obligations to the Canada Revenue Agency (CRA). Whether you're an owner of a residential real estate investment trust or a citizen or permanent resident with individual properties, our experts will ensure your UHT return form is accurately filled out and promptly filed. Avoid the pitfalls of hefty fines and trust in our expertise to guide you through the intricate maze of UHT requirements. Your peace of mind is our mission.
At Genesa CPA Corporation, we specialize in helping businesses navigate the complexities of corporate tax returns and income tax. To ensure your business complies with Canadian tax laws and regulations, feel free to contact our team. We can assist with your T2 tax filing, tax planning, financial advising and other services to help build your business’s financial foundation.
What is Underused Housing Tax (UHT)?
For many Canadians, especially here in Vancouver, BC, understanding the intricacies of property-related taxes is paramount. The Underused Housing Tax (UHT) is a recent addition to our tax landscape, and at Genesa Corp, we're here to demystify its impact.
Initiated by the Federal Government on January 01, 2022, the UHT aims to address vacant or underused housing across Canada. This means if you own a residential property that’s not being utilized to its full potential, you could be impacted by this tax. Every affected owner, including those who jointly own a property, must file a UHT return. Specifically, the 2022 UHT tax return, or Form UHT-2900, must be submitted by April 30, 2023.
However, what’s essential to note, especially for our entrepreneurial leaders who operate under the banner of a specified Canadian corporation or other entities, is the range of penalties for failing to file. While individuals face a starting penalty of $5,000, corporations, partnerships, and trusts have a steeper starting penalty of $10,000 per filing.
That said, Canadian citizens and permanent residents received a grace period this year. Recognizing the challenges of this new tax, the CRA has extended a courtesy: penalties and interest fees for the 2022 UHT returns will be waived if filed and settled by October 31, 2023.
Our dedication at Genesa Corp is to ensure you're informed and prepared. Whether it’s understanding the fair market value implications or designating a primary place of residence, we're here to guide you every step of the way.
Which owners of residential properties are included & excluded?
In the realm of residential property ownership, the Act divides owners into two distinct categories: excluded owners and affected owners. If you're an excluded owner, rest easy; the UHT obligations don't apply to you. However, if you're not fortunate enough to fit under this 'excluded' umbrella, you're an affected owner. This means even if you have a residential condominium unit or if you're a Canadian citizen or permanent resident claiming an exemption, you must still file a UHT return. The key lies in understanding your position vis-a-vis the qualifying occupancy period and acting accordingly.
Who Needs to File a Return?
If you're wondering about the intricacies of the Underused Housing Tax Act, let's simplify it.
The Canada Revenue Agency is clear on this: if you're not among a specific class of excluded owners, you're considered an "affected owner" and obligated to file a UHT return. This includes everyone from non-Canadian residents, non-permanent residents, to private corporations. Even if you're a partner in a Canadian partnership or a trust holding residential condominium units, the mandate applies. Every dwelling unit you own requires a separate return. It's essential to ensure your place of residence is correctly reported and any UHT dues are settled promptly. Your compliance is not just a legal requirement but a testament to your commitment to Canadian housing ethics.
However, owners of residential property in Canada aren't the only ones on the Canada Revenue Agency's radar. Beyond the registered property owners, if you're a life tenant under a life estate, a long-term lessee with continuous possession for two decades or more, or someone with an option to buy the land, you're included. This applies to all—from individual dwelling units to sprawling residential condominium units. Make sure your place of residence aligns with the rules or consult with experts to navigate these waters smoothly.
Who is Excluded from the Tax?
Navigating the landscape of residential property taxes in Canada can be intricate, but let's clarify who is exempt from this particular tax. If you're a Canadian citizen or a permanent resident, take a sigh of relief; generally, you're on the list of exclusions. Additionally, public entities like universities, public colleges, municipalities, hospital authorities, and Indigenous governing bodies are safe from this levy. Corporations with publicly traded shares, trustees of certain real estate trusts, and registered charities find themselves in the clear as well.
However, it's not a blanket pass for all. Some Canadian citizens, permanent residents, and specific corporations might have to dive deeper into their ownership structures. For instance, if a corporation finds that over 10% of its voting shares are held by non-Canadian entities or its board has a significant non-Canadian presence, it’s time for a detailed review. The golden rule? If you’re an "excluded owner" as of December 31 in a given calendar year, you're typically exempt. But always verify against the specifics to stay compliant.
What are Residential Properties?
When we speak of "residential property" in Canada, we're referring to a specific classification. It's not just any plot of land; there needs to be a structural element to it. Whether it's a cozy detached house, a semi-detached dwelling, a convenient residential condo unit, or even a row house, it falls under this definition. These are places people often consider as their primary place of residence. Intriguingly, owning such a property can lead to multiple tax implications.
Canadian owners might find themselves navigating the waters of not just this new tax but also the Speculation and Vacancy Tax and the Vancouver Empty Homes Tax in a single calendar year. This means understanding your ownership percentage, calculating tax payable, and keeping an eye on qualifying occupancy periods is essential. Each dwelling unit has its unique nuances, and understanding them can be a game-changer.
Navigating the nuances of tax exemptions? Let's simplify.
Primary Residence: Your home sweet home gets a pass. If a property serves as the primary place of residence for the owner, their spouse or common-law partner, or even a studious child attending a designated institution, it’s exempt. However, if you're fortunate enough to own multiple properties, tread cautiously. Only one can wear the 'primary residence' crown per year. And remember, couples need to unite in their choice – you can't divide and conquer here.
Occupancy Matters: Simply put, if the property isn't vacant, it might be exempt. But who's occupying matters. Whether it's an unrelated tenant, a related one who pays market-rate rent, or even a family member holding Canadian citizenship or residency, the criteria are strict. The magic number? The property should be inhabited for at least 180 days in a "qualifying occupancy period", which translates to continuous occupancy for a month within the year.
Navigating Location-Based Exemptions: Did you know? If your property resides in certain "prescribed areas" – often referred to as "vacation properties" on the Government of Canada’s official site – you might be eligible for an exemption. There's a catch: the owner or their significant other (be it a spouse or common-law partner) must spend a minimum of 28 days at this property within the year. To streamline the process, the Canada Revenue Agency offers a handy tool enabling owners to discern if their residential properties fall within these designated areas.
Special Circumstances: Life's unpredictable turns can be your exemption ticket. If renovations or calamities have rendered your property uninhabitable, you're covered. The same goes for recently purchased properties, those under construction, or instances where the owner has passed away. Keep an ear to the ground for potential exemptions for seasonal or vacation properties (see above), but that's still under deliberation.
Lastly, an essential asterisk: even if you bask in exemption glory, don't forget to file your tax return.
How is the UHT calculated?
The underused housing tax stands at a rate of 1%. Typically, to determine the payable amount for this tax, every impacted residential property owner should take the 1% rate and apply it to their property's value. Subsequently, they'll adjust this by their specific ownership percentage for that property.
What are the Penalties if You Fail to Pay the Tax?
Failing to address this tax head-on can come with a heavy price. We touched on this above but due to the steep fees, it's worth mentioning again. If you neglect to file a return, penalties escalate quickly. Individuals face fines of $5,000, while non-individual entities, like corporations, see that figure doubled to $10,000. And it doesn’t stop there. There's also an additional 5% of the calculated tax and an ongoing 3% monthly penalty on the due tax for each month the return remains unfiled.
Proactive action is the name of the game. Delve into how your residential property operates, and investigate potential exemptions. Stay vigilant; the Act's flexibility means it could evolve with more stipulations. Property owners should prioritize understanding this new Act, especially with the looming April 30, 2023, deadline for the 2022 calendar year.
Contact our Vancouver accountants today to get started
Whether your needs are for advice on tax planning, business planning, corporate finance strategy, or other complex business and financial matters, the Genesa team will help you achieve your goals.