On June 9, 2022, the Government of Canada implemented the new Underused Housing Tax (UHT) that will affect certain residential property owners, including some short and long term rental property owners, as of December 31, 2022.
For a full overview of the Underused Housing Tax, see our previous article.
Canadian citizens and permanent residents are excluded owners and do not have a requirement to file a UHT return. However, any arrangement considered a partnership is not excluded, and therefore required to file.
This raises a number of questions around who has the obligation to file a UHT return and when a rental operation is considered a partnership. We asked the CRA’s UHT technical division and below is an overview of their response as of March 8, 2023.
What qualifies a rental operation as a partnership?
The determination of a partnership is dependent on the individual provinces’ definition of a partnership (see the BC Partnership Act).
The BC Partnership Act specifically states that joint tenancy, tenancy in common, joint property, common property or part ownership does not of itself create a partnership, whether the tenants or owners do or do not share any profits made by the use of the property.
What are the UHT filing requirements for Airbnbs?
Airbnbs that have been determined to be a partnership and have been reporting income as business income (S2125) would be treated as partnership income under the Underused Housing Tax Act (UHTA) and would require a UHT filing.
The UHT filing will be required by the owner listed on the title of the property as it would be considered that the residential property is held by the individual in their capacity as a partner of partnership.
If the income earned from the Airbnb is reported only under one individual owner, they are not required to file UHT provided that they are an excluded owner under the UHTA.
There are exemptions available for Canadian specified partnerships, however, you will still need to file the UHT return in order to claim your exemption.
Do Canadian taxpayers who own residential investment property to earn rental income with their spouse have a UHT filing requirement?
Canadian taxpayers who own a residential property to earn rental income and split the income with their spouse, or jointly own the property with their spouse to earn rental income are not automatically treated as partners of a partnership.
Provided the individuals listed on the title are excluded owners, there is no filing requirement under the UHTA.
Do Canadian citizens/residents who own residential property in only one spouse’s name have a UHT filing requirement?
When a Canadian resident owns residential property in their name and the taxpayer resides on the property with a spouse or common law partner, there is no requirement to file a UHT return, even though the spouse/common law partner may have beneficial ownership.
When a Canadian resident owns residential property in their name, and the taxpayer does not reside in the property with a spouse or common law partner, the requirement to file will be based on the definition of their trust under the provincial legislation.
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.