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The Underused Housing Tax is an annual 1% tax on the ownership of vacant or underused residential housing in Canada that took effect on January 1, 2022. The tax usually applies to non-resident, non-Canadian owners. In some situations, however, it also applies to Canadian owners.

In general, Canadian citizens and permanent residents are exempt from filing a return for their principal residence.

So called “affected” owners must file a return and may owe tax. Affected owners includes, but is not limited to:  

• an individual who is not a Canadian citizen or permanent resident
• an individual who is a Canadian citizen or permanent resident and who owns a residential property as a trustee of a trust (other than as a personal representative of a deceased individual)
• any person - including an individual who is a Canadian citizen or permanent resident - that owns a residential property as a partner of a partnership
• a corporation that is incorporated outside Canada
• a Canadian corporation whose shares are not listed on a Canadian stock exchange designated for Canadian income tax purposes (i.e. private corporations)
• a Canadian corporation without share capital

Important:

Trusts include bare trusts or trust arrangements. Examples of where bare trusts could exist include, but are not limited to, the following:  

• Parents on title to a child’s house for mortgage financing;
• Child on title to a parent’s house for ease of transfer on death and probate reasons;
• Parents or grandparents on investment accounts held in trust for children or grandchildren;
• Parents placing children’s name on financial accounts to look after their finances should they become incapacitated, either mentally or otherwise; or
• In the case of a bare trustee corporations

There are many exemptions from tax that apply to affected owners, but there is still a requirement to file a return by April 30 for the previous calendar year.

The penalties for failure to file a return are substantial.

More information can be found on the CRA website at: https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html

If you would like assistance in determining your filing obligations and/or filing the return please contact us at office@graphite.cpa.

Beginning with years ending on or after December 30, 2023 most trusts will be required to file a T3 Trust return regardless of the levels of income. Previously, trusts only were required to file a return if there was income to report.

Important

Bare trusts or trust arrangements will be required to file a T3 return even if there is no income or no tax payable. Examples of where bare trusts could exist include, but are not limited to, the following:

• Parents on title to a child’s house for mortgage financing;
• Child on title to a parent’s house for ease of transfer on death and probate reasons;
• Parents or grandparents on investment accounts held in trust for children or grandchildren;
• Parents placing children’s name on financial accounts to look after their finances should they become incapacitated, either mentally or otherwise; or
• In the case of a bare trustee corporations

More information can be found on the CRA website at: https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/budget-2018-equality-growth-strong-middle-class/reporting-requirements-trusts.html

The penalties for failure to file a return are substantial.

If you would like assistance in determining your filing obligations and/or filing the return please contact us at office@graphite.cpa.