Understanding Tax Changes on the Recent Government Proposal for Residential Property Owners

Understanding the UHT

In our view, the outlined changes in the fall economic statement suggest a potential expansion of the group of property owners exempted from the underused housing tax (UHT) filing requirement. Moreover, we believe the proposal introduces substantial reductions in penalties for non-compliance.

Decoding the UHT

To put it simply, the UHT is a 1% annual tax imposed on the ownership of vacant or underused housing in Canada, starting from 2022. It appears that, recognizing the need for adaptability, the Canada Revenue Agency has proactively extended the deadline for filing the UHT return for 2022 without incurring penalties or interest.

Compliance and Exemptions

In practical terms, Canadian property owners using trusts, private corporations, or partnerships usually have the obligation to file a UHT return. However, exemptions are available for specified Canadian corporations, partnerships, or trusts that are substantially or entirely Canadian. According to our analysis and in line with the fall economic statement, MLL Accounting supports the proposed expansion of the “excluded owner” definition, set to take effect from 2023 onward.

Penalty Reductions

Looking at the proposed reduction in penalties related to the failure to file a UHT return, it’s noteworthy that the penalty for individuals is expected to decrease from $5,000 to $1,000, and for corporations, from $10,000 to $2,000. These changes are set to be effective from 2022 and subsequent years.

UHT Framework Adjustments

Considering further adjustments to the UHT framework, the government is contemplating the exclusion of “condominiumized” apartment buildings from the definition of residential property for UHT purposes, starting in 2022. Draft legislative and regulatory proposals outlining these changes will be released for consultation until January 3, 2024, with subsequent legislative considerations in the pipeline.

Responding to Feedback

In essence, these proposed amendments respond to feedback from Canadians regarding UHT implementation. We strongly believe that their aim is not only to enhance compliance but also to ensure that the tax continues to align with its intended purpose.

Budget 2021 and Future Implications

To the best of our ability, it is our belief that the national 1% tax on non-resident, non-Canadian owned residential real estate, introduced in Budget 2021, initially laid the groundwork for these proposed changes. In our considered opinion, MLL Accounting views these amendments favorably, anticipating a positive impact on our clients and their compliance obligations.