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What does the Underused Housing Tax mean for farm owners?

What does the Underused Housing Tax mean for farm owners?

Synopsis
2 Minute Read

Under the new Underused Housing Tax (UHT) many farmers are expected to be “affected owners” given the common ownership structures of farms.

What you need to know:

  • An annual UHT return must now be filed for each residential property by certain legal owners (known as affected owners)
  • There are exemptions available from the one percent tax, but affected owners will need to file an annual return to claim them
  • There is a grace period during this first year of implementation: no penalties or interest will be charged for 2022 returns or payments received by October 31, 2023
Senior Manager, Assurance and Accounting

The federal government introduced the Underused Housing Tax (UHT) effective January 1, 2022. The UHT rules require certain owners of residential properties (called affected owners) to file an annual return and pay a one percent annual tax unless an exemption can be claimed. 

The good news is that even though many farmers are included in the definition of affected owners under the UHT, many will qualify for an exemption from the one percent tax. However, it is important to understand that if you fall into this group of affected owners, you will still need to file an annual return to claim the exemption.

What is considered a residential property?

The UHT considers detached and semi-detached houses as residential properties — whether the property is vacant, underused or used year-round is irrelevant for the filing requirement. There are, however, some exceptions. Boarding and lodging houses and mobile homes aren’t considered residential properties for UHT purposes and are therefore excluded from the filing requirement. Also, if you’ve started building a new residence on your property and it isn’t substantially completed (generally 90 percent or more) by December 31 in a year, you don’t have to file a return for that year.

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Who is required to file a UHT return?

An affected owner is any Canadian corporation, partnership or trust that owns residential property. This definition excludes Canadian citizens or permanent residents who own property as a sole proprietor, but most other ownership structures are captured under the UHT rules. Each legal owner of a property at December 31, if they are an affected owner, must file a UHT return for that calendar year.

An annual UHT return must be filed for each residential property, by each legal owner.

For example, if a partnership of two Canadian individuals owns three farms with residences, then each individual must file three returns, for a total of six UHT returns. Note that as part of estate administration planning, land transfer tax planning or a property transfer, the legal ownership may be different from the beneficial ownership of the farm. Affected owners are those with legal ownership at December 31 each year and are the ones who are subject to the UHT filing requirements. It is therefore important to be aware of any people being added to the title in a year, as this can result in more UHT returns required than you might have expected.

What are the available exemptions from the one percent tax?

Affected owners of residential properties on a farm will have to file the annual UHT return and potentially pay the UHT. That said, most farmers will find the ownership characteristics or uses of the residential property will allow them to claim an exemption from the one percent tax. If the parties with ownership of the corporation, partnership or trust holding the residential property are Canadian citizens or permanent residents of Canada, this ownership will generally allow an exemption from the tax. Even if some non-Canadian residents are involved, an exemption from the tax may be available based on the use of the property. Common exemptions for use are:

  • Primary place of residence
  • Qualifying occupancy (The property was occupied by certain parties for at least 180 days in the year, made up of one or more periods that are at least one month long.)
  • Renovation or construction (The property was uninhabitable for at least 120 consecutive days in the calendar year or was not substantially completed by April of the calendar year.)

See the full list of available exemptions and details here.

Tax planning tips

The UHT rules are not expected to significantly change tax planning for farmers. In the future, affected owners will need to account for an additional annual compliance cost to file UHT returns. Farmers will also need to ensure their ownership structure is documented and reviewed every year, particularly if legal ownership of properties changes or if the facts surrounding the eligible exemptions change.

Clearly documenting all parties with legal ownership can make your annual UHT filing obligations easier by identifying all parties required to file a UHT return.

You can still file your 2022 UHT return without penalty

The filing deadline is April 30, following each calendar year. However, to help transition to the new rules, the Canada Revenue Agency won’t charge any penalties or interest for late 2022 UHT returns or late UHT payments if they’re received by April 30, 2024. 

Failure to file or filing late – even if you are exempt from the tax – can lead to significant penalties:

  • $5,000 per individual, per form
  • $10,000 per corporation, per form

Additional penalties may be assessed in special circumstances. Unpaid taxes are subject to interest.

Remember, all affected owners of residential properties must file an annual UHT return even when the property is exempt from the UHT. The return must be filed to claim the exemption.

Have questions about the UHT?

For more information, contact Brittany Zehr, CPA, CGA. 

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