On June 9, 2022, the Government of Canada implemented the new Underused Housing Tax (UHT) that will affect certain residential property owners, including some trustees of bare trusts, as of December 31, 2022.
For a full overview of the Underused Housing Tax, see our previous article.
What is a bare trust?
While the term “bare trust” is not defined in the Income Tax Act, it is included in the definition of a trust for the purposes of the Underused Housing Tax Act (UHTA). A bare trust agreement exists when the legal title holder is separate from the beneficial owner.
Common types of bare trust arrangements include:
- A parent adds adult children to the title of their property for probate planning purposes
- A child adds a parent to the title of their property in order to obtain financing
- Legal title is held by a bare trust corporation but the beneficial owner is a separate entity
- Legal title to the property is registered in the name of a spouse, even though both spouses have beneficial ownership
- Legal title is held on behalf of a group of owners in a partnership
Please note that the list above is not exhaustive.
More information on bare trusts can be found on the CRA website.
Do bare trusts have a UHT filing obligation?
For the purposes of UHT, there is no distinction made between bare trusts and other affected trusts.
Trustees of bare trusts are required to file UHT returns as the CRA considers bare trusts a trust under the Underused Housing Tax Act. The CRA maintains that unless the residential property is held as a trustee of a mutual fund trust, real estate investment trust, or specified investment flow-through trust (SIFT) for Canadian income tax purposes, they are not excluded owners and require UHT filing.
If a bare trust has multiple trustees, who has to file the UHT return?
If the land registration title indicates multiple trustees, then each trustee must file for their proportionate share of ownership as indicated in the land title. This is because the filing requirements for trusts are based on the name listed on the title of the land registration system.
What are the T3 trust return filing requirements for trust years ending after December 30, 2023?
Starting in the 2023 taxation year, there are new reporting and disclosure rules for certain trusts resident in Canada. For trust years ending after December 30, 2023, bare trusts will now be required to file a T3 Trust Income Tax and Information Return. If you think you have a bare trust or another type of trust that hasn’t been filing a tax return, please contact your professional advisor to confirm if you have a filing requirement.
What are the penalties for failing to file an Underused Housing Tax return on time?
There are significant penalties for failing to file your UHT return when it is due. Affected owners who do not file on time will be penalized a minimum of:
- $5,000 for individuals
- $10,000 for corporations
An affected owner of an exempt property could still be subject to UHT if the UHT return is not completed.
Please note: the CRA has been making a number of updates to the interpretations of the Underused Housing Tax Act. Please contact our office to ensure you have the most up-to-date information on filing requirements.
This post has been prepared for general information purposes. It is not advice. The information presented may not fit your unique situation, please consult one of our trusted business advisors at RHN CPA for further clarification and interpretation of your circumstances.