In 2017, the City of Vancouver introduced the Empty Homes Tax. In 2018, BC passed the Speculation and Vacancy Tax Act (the “SVTA”), and in 2019, the Land Owner Transparency Act. Most recently in June of 2022, Parliament enacted the Underused Housing Tax Act (the “UHTA”), effective January 1, 2022.
The UHTA requires certain owners of residential property in Canada to file an annual return and – unless an exemption applies – to pay a tax amounting to 1% of their property’s value (the “UHT”). For owners not excluded by the UHTA, returns for the 2022 tax year need to be filed by April 30, 2023.
On March 27, 2023, the Minister of National Revenue announced that the application of penalties and interest under the UHTA for 2022 will be waived for any UHT return and for any late-paid UHT payable, provided the return is filed or the UHT is paid by October 31, 2023.
Owners of residential property would be well advised to familiarize themselves with the filing requirements and tax liability under the UHTA, as summarized in this article.
What kinds of properties are covered by the UHTA?
According to the interpretation of the Canada Revenue Agency (the “CRA”), the following are examples of residential properties for the purpose of the UHTA:
- detached houses
- duplexes and triplexes
- laneway houses and coach houses
- cottages, cabins and chalets that are not commercial cottages, cabins and chalets
- semi-detached houses
- residential condominium units
- rowhouse units or townhouses
The CRA considers the following to not be residential properties for the purpose of the UHTA:
- quadruplexes (buildings that have four dwelling units)
- high-rise apartment buildings
- buildings that are primarily (more than 50%) for retail or office use and that contain an apartment
- commercial condominium units
- boarding houses and lodging houses
- commercial cottages, cabins and chalets (that is, those that are used by the operator of an establishment to provide lodging to several unrelated business or leisure travellers at once in separate cottages, cabins or chalets)
- hotels, motels, inns, and bed and breakfasts
- floating homes
- mobile homes
- park model trailers
- travel trailers, motor homes and camping trailers
Who is considered an owner under the UHTA?
A person is considered an owner of a residential property if any of the following apply:
- you are identified as an owner of the property in the land registration system where the property is located
- you are considered an owner of the property based on such a land registration system
- you are a life tenant under a life estate in the property
- you are a life lease holder of the property
- you are a lessee that has continuous possession of the land on which the property is situated under a long-term lease (i.e., a lease covering a period of more than 20 years or a lease that contains an option to purchase the land)
A person is not considered an owner of a residential property if he or she gives continuous possession to either:
- a life lease holder
- a lessee under a long-term lease
Who needs to file a return?
The UHTA requires any owner that is not an “excluded owner” of one or more residential properties on December 31 of a calendar year to file a return for each residential property by April 30 of the following year.
An excluded owner is any of the following:
- the Crown
- an individual who is a citizen or permanent resident, unless they own the property as a trustee of a trust (but not as a personal representative in respect of a deceased individual) or as a partner of a partnership
- a public corporation (i.e., traded on a stock exchange)
- a trustee of a mutual fund trust, a real estate investment trust, or a SIFT trust, as defined in the Income Tax Act (the “ITA”)
- a registered charity
- a cooperative housing corporation, a hospital authority, a municipality, a public college, a school authority, or a university
- an indigenous governing body
All other owners are referred to by the CRA as “affected owners”.
Most individual owners in BC will be excluded as either citizens or permanent residents. Such an individual who is a personal representative of a deceased’s estate will be excluded, but a trustee of a testamentary trust who is not a personal representative will need to file a return.
Notably, private corporations are not excluded owners.
So, if you are an individual who is not a citizen or permanent resident and you own residential property in Canada, you will need to file a return. Likewise, if your private corporation owns residential property, or you hold property as a trustee (except as detailed above) or through a partnership, you will be required to file.
Who is liable to pay the UHT?
All affected owners are liable to pay the UHT unless otherwise provided for in the legislation.
Canadian corporations can claim an exemption if less than 10% of the voting shares and equity value are owned by non-Canadian individuals or corporations. For Canadian corporations without share capital (i.e., non-profits), the exemption can be claimed as long as the chairperson or other presiding officer is a citizen or permanent resident and less than 10% of the directors are non-Canadian individuals. In either case, an exempt corporation is referred to as a “specified Canadian corporation”.
For those who hold residential property through a trust, an exemption can be claimed if each beneficiary having an interest in the property is an excluded owner or a specified Canadian corporation. Similarly, those who hold residential property through a partnership can claim an exemption if each partner of the partnership is an excluded owner or a specified Canadian corporation.
An affected owner who owns a residential property outside of a corporation, trust or partnership may qualify for one of the following exemptions:
Primary Residence or Qualifying Occupancy
No tax is payable if the property is the primary place of residence of the individual owner, the individual’s spouse or common-law partner, or a child of the individual or his or her spouse or common-law partner, if that child is a student.
Similarly, an exemption may be claimed if, for periods of at least one month and that total at least 180 days of the year, the property is occupied by an individual who is either:
- an individual who deals at arm’s length with the owner and any spouse or common-law partner of the owner, under a written agreement;
- an individual who does not deal at arm’s length with the owner and any spouse or common-law partner of the owner, and who is given continuous occupancy of the property under a written agreement, and for consideration that is fair market rent or higher;
- an individual who is the owner or the owner’s spouse or common-law partner, who is in Canada under a work permit and who occupies the property for that purpose; or
- an individual who is a spouse, common-law partner, parent or child of the owner and who is a citizen or permanent resident.
If a non-Canadian individual, together with their non-Canadian spouse or common-law partner, own multiple residential properties, then the UHT may be payable on all such properties except for the one property for which an election is made to designate it as either a primary place of residence or occupied by an individual described above.
Unavailability of the Property
No tax is payable by an affected owner if:
- the property is not suitable for year-round use as a place of residence;
- the property is seasonally inaccessible because public access is not maintained year-round;
- the property is uninhabitable for a period of at least 60 consecutive days in the year because of a disaster or hazardous condition caused by circumstances beyond the reasonable control of the owner (cannot be claimed for the same disaster or hazardous condition more than two years in a row);
- the property is uninhabitable for a period of at least 120 consecutive days in the year as a result of a renovation to the property and any work in relation to the renovation is carried on without unreasonable delay (cannot be claimed if this exemption was claimed for the property for any of the nine prior years);
- the construction of the property is not substantially completed before April of the year;
- the construction of the property is substantially completed in January, February or March of the year, the residential property is offered for sale during the year, and the property had never been occupied by an individual as a place of residence during the year; or
- the property is located in a prescribed area and prescribed conditions, if any, are met.
No tax is payable by an affected owner if:
- the person becomes the owner of the property in the year (and was never an owner of the property in the nine prior years);
- the person died during the year or the prior year;
- the person is the personal representative of a deceased individual who was an owner of the property during the year or the prior year and the person was not otherwise an owner of the property in either of those years; or
- an individual who was an owner of the property died during the year or a prior year and the individual’s ownership interest in the property at the time of death was at least 25%, and the person was an owner of the property on the day the individual died.
The CRA has the power to determine the tax consequences of a transaction so as to deny a tax benefit that, but for the anti-avoidance provisions of the UHTA, would result from that transaction (or a series of transactions that include that transaction). This power will be exercised where a transaction is determined to be an “avoidance transaction”.
An avoidance transaction is any transaction that (either on its own or as part of a series of transactions), but for the anti-avoidance provisions of the UHTA, would result directly or indirectly in a tax benefit, unless the transaction can reasonably be considered to have been undertaken primarily for good faith purposes other than to obtain a tax benefit.
Unlike the BC SVTA (and more in line with the federal ITA), for the anti-avoidance rule to be applied the UHTA requires that a transaction must result in a misuse of the provisions of the UHTA or an abuse having regard to the provisions of the UHTA read as a whole. This means that, despite the SVTA being a similar piece of legislation to the UHTA, a transaction that would be invalidated under the anti-avoidance rule found in the SVTA may not be invalidated under the UHTA.
Penalties, Offences and Punishment
Any person who is required to file a return under the UHTA but does not do so is liable to a minimum penalty of $5,000 for individuals and $10,000 for corporations.
Any person who knowingly or (grossly) negligently makes a false statement or omission relevant to the determination of an amount payable under the UHTA is liable to a penalty of the greater of $500 and 25% of the total of the amount by which the amount payable exceeds the amount that would be payable by the person if the amount payable were determined on the basis of the information provided in the return.
Any person who knowingly or (grossly) negligently makes a false statement or omission relevant to the determination of an amount that may be obtained under the UHTA is liable to a penalty of the greater of $500 and 25% of the total of the amount that would be the amount payable to the person if the amount were determined on the basis of the information provided in the return exceeds the amount payable to the person.
Additionally, the UHTA contains provisions establishing offences that, if a person is convicted, carry fines in addition to the above penalties and/or terms of imprisonment of up to two years.
While the vast majority of residential property owners in BC will either not need to file a UHT return or will be exempt from the UHT, this new legislation adds another layer of complexity to property ownership in the province. This is particularly the case for those who choose to hold property through such vehicles as corporations, trusts and partnerships.
Non-resident owners who have placed their property in a trust to allow family members to benefit from the principal residence exemption under the SVTA will now need to file UHT returns, highlighting just one example of this increased complexity.
Farmers who carry on their business through a corporation will often hold residential property as part of the corporation’s assets. They too will now need to file UHT returns.
If you are in doubt as to whether you need to file for your residential property, or whether you are liable to pay the UHT, contact Crease Harman to speak with a lawyer today.
By Spencer Evans
Originally from a small town in Ontario, Spencer spent seven years posted to Victoria with the Royal Canadian Navy before returning to study history and political science at the University of Ottawa. After graduating from Queen’s Law in 2021, Spencer moved back to Victoria to complete his articles with Crease Harman and was called to the British Columbia bar in 2022.