QUESTION:
Do I need to file an Underused Housing Tax (UHT) return if I own a rental property with my spouse?
ANSWER:
Short answer? Maybe. Underused Housing Tax (UHT) affects private corporations, trusts, partnerships, non-citizens, residents who are not permanent residents, and non-residents of Canada who own residential properties in Canada. Although most of these affected owners would not have taxes owing, there may be filing requirements.
In most instances it is fairly straightforward to determine whether a filing requirement exists. The area that remains unclear relates to partnerships.
Is owning a rental property or multiple properties, with a related (or unrelated) individual, considered a partnership or co-ownership?
If the answer is partnership, then there is a UHT filing obligation. If it is a co-ownership, there is no filing obligation.
There are significant penalties if it is determined that you are an affected owner and fail to file a UHT return by the deadline. Each person and each property require its own separate form. Affected owners who are individuals are subject to a minimum penalty of $5,000 per form. As an example, if you and your spouse jointly own two rental properties and were deemed to be a partnership, the combined penalty for both of you would be $20,000.
The Canada Revenue Agency (CRA) has not provided clear guidance on the distinction between a partnership and a co-ownership:
“The term partnership is not defined in the UHTA. Generally, a relationship that is a valid partnership under general law is treated as a partnership for UHT purposes. Whether a relationship is a partnership is a question of fact. Canada’s tax system is based on self-assessment, which requires persons to determine the facts themselves. The CRA then assists persons to understand how the tax laws apply to a given set of facts.”
So, what constitutes a partnership? The Supreme Court of Canada has referred to the provincial and territorial partnership statutes to identify three fundamental criteria for determining whether a partnership relationship exists in the common law provinces. To establish the presence of a partnership relationship one must demonstrate that two or more persons are:
- carrying on business;
- in common;
- with a view to profit.
If you own a rental property with one or more related or unrelated individuals, the facts and circumstances surrounding your relationship will need to be evaluated to determine if a partnership or co-ownership relationship exists.
The annual return filing deadline for calendar year 2022 is April 30, 2023 but the CRA has provided transitional relief until October 31, 2023. Filing before that date will not result in penalties or interest. The filing deadline for the 2023 calendar year and beyond is April 30, notwithstanding many filers of UHT returns are not individual persons.
It is our view that there is no downside to filing a UHT return if you are at all uncertain of your ownership status (partnership vs. co-ownership).
S+C Partners is here to help you
Please call us at 905-821-9215 or email us at info@scpllp.com if you require any assistance filing a UHT return or if you have any questions.
Please see our February Insight ‘Underused Housing Tax: Key Considerations’ for additional information on UTH.
Looking for more information on tax planning considerations in Canada? Explore our comprehensive tax services.
We also specialize in accounting, advisory and Information Technology. Explore our complete service offering.
Read our most recent Insights.
S+C Partners is a full-service firm of Chartered Professional Accountants, tax specialists, and business advisors with in-house expertise that extends well beyond traditional CPA services. In addition to audit, accounting, and Canadian tax services, we also offer business advisory services, comprehensive IT solutions, Human Resource consulting, and in-house expertise within highly focused areas such as US taxation, business valuations, and estate planning. We provide all the technical expertise of a large CPA firm, but with the personal touch and partner-level attention of a boutique accounting and advisory firm.