(J.M.) WHAT DO FARMERS NEED TO KNOW ABOUT THE UNDERUSED HOUSING TAX?
(B.Z.) The Underused Housing Tax (UHT) is a new tax that took effect on January 1, 2022. It requires an annual return to be filed by “affected owners” of residential property and applies a one per cent annual tax to properties considered vacant or underused unless an exemption can be claimed.
Many farms are structured in partnerships or corporations, and occasionally there may be trusts with respect to the land ownership. This type of ownership is generally caught in the “affected owners” category; therefore, many farmers will be required to file a UHT return.
WHO IS REQUIRED TO FILE A UHT RETURN?
WHO IS REQUIRED TO FILE A UHT RETURN?
The UHT rules cast a wide net in terms of who must file. Generally, all Canadian corporations (except publicly traded Canadian corporations or Crown corporations), Canadian partnerships, and Canadian trusts have an annual UHT filing requirement for any residential property they own.
The filing requirement is with the legal owner(s) as of December 31 of each year. This is important to note, especially when the legal ownership is different from the beneficial ownership — which can often be the case for estate administration planning or land transfer tax planning purposes – or when a property is transferred from one owner to another, but the legal title has not been registered to the new owner yet.
The definition of residential property is also very broad. Some exceptions apply. For example, the Canada Revenue Agency (CRA) has indicated that there is no obligation to file a return for a residential property in a calendar year if the construction of the new property was not substantially completed on December 31 of the calendar year. The CRA has also provided examples of buildings that are not considered residential properties, such as boarding or lodging houses and mobile homes, to name a few.
It is also important to note that an annual return must be filed for each property by each legal owner. For example, if a partnership of three Canadian individuals owns two farms with residences, then each individual has to file two returns for a total of six UHT returns.
WHAT ARE THE UHT TAX FILING DEADLINES FOR 2023?
The filing deadline is April 30 annually. For the 2022 calendar year, returns were due May 1, 2023; however, the CRA announced no penalties or interest would be applied for late 2022 UHT returns, and UHT payments provided the CRA received the returns and payments by October 31, 2023.
WHAT DO THE UHT RULES MEAN TO FARMERS?
Many farmers are expected to be able to claim an exemption for the one per cent tax. However, even though the tax itself may not apply to Canadian farmers, the annual filing requirements have taken many farmers by surprise. Because the tax is intended for vacant or underused housing, many farmers may not realize the rules on filing the annual returns apply to them. Many of our clients first responded to this legislation with the sentiment that they occupy their residence year-round and therefore didn’t expect the rules to be applicable.
WHAT ARE THE PENALTIES IF FARMERS DO NOT FILE?
There are significant penalties for not filing or filing late — even if no tax is due. Those penalties are $5,000 per individual per form and $10,000 per corporation per form. Additional penalties may be assessed in special circumstances. Unpaid taxes are subject to interest and penalties.
HOW WILL THE UHT IMPACT FAMILY TAX PLANNING AND FILING IN FUTURE YEARS?
We do not expect the UHT rules to significantly change tax planning for farms. However, having to file UHT returns will be an additional compliance cost for affected farmers.
For joint ownership of residential real estate, there is added importance going forward to clearly document whether the ownership is properly classified as a co-ownership, a partnership, or a trust relationship to ensure the farmers are clear on the UHT filing requirements.
DO YOU HAVE ANY UHT TAX PLANNING ADVICE FOR FARMERS?
Ensure the legal ownership of all farms is clearly documented and reviewed each year to help stay on top of the UHT annual filing obligations.
WHERE CAN FARMERS GO TO GET MORE INFORMATION?
Visit mnp.ca to get the latest updates and insights on UHT. For more detailed questions, contact your local MNP advisor. •