Underused Housing Tax (UHT)

Warning!! If you own a Canadian residential property, you might be required to file the Underused Housing Tax (UHT) before October 31th, 2023.

The impact of this brand new Underused Housing Tax is a lot broader than most Canadians have imagined. The legislation is quite long and complex; I’m writing this blog to specifically bring attention to affected owners who might need to file this return. If you are on the legal title of a Canadian residential property on December 31, 2022, and if you are one of the following described below, you need to file the UHT by October 31st, 2023. Minimum $5,000 penalty will be imposed on individuals and $10,000 on all other type of owners including corporations for late filing or failure to file.

Affected Owners:

  • Individuals who are not Canadian citizens or permanent residents of Canada: such as foreign workers, international students, and foreigners
  • Canadian controlled private corporations (CCPCs) and other privately held Canadian corporations: most of the corporations in Canada are under this category
  • Foreign corporations: incorporated outside of Canada
  • Individuals who own residential property as a trustee of a trust(other than as the personal representative of a deceased individual)
  • Individuals who own residential property as a partner of a partnership

If you have a holding company or any corporation that owns a residential property in Canada, you are required to file the UHT. In most cases, there won’t be any tax owing.

Examples of residential property:

  • detached houses
  • semi-detached houses
  • duplexes and triplexes
  • cottages, cabins and chalets
  • townhouses
  • condominium units

Examples of property that are not residential property:

  • buildings with 4 or more units
  • buildings that are primarily (50% or more) used for retail or offices
  • mobile homes, travel trailers, motor homes and camping trailers
  • hotels, motels, inns and bed and breakfasts

For more information regarding UHT, please click here.

As the deadline is fast approaching, if you are not sure whether you’re required to file the UHT, please take the following actions:

  1. Notify Streamline Accounting Professional Corporation by phone or email right away, and we will help you assess your situation and determine your filing requirement.
  2. If you are required to file, and you are a corporation, please apply for the RU number. Please click here for how to get a RU or we will help you if you are a current client with Streamline Accounting PC.
  3. We will provide you with a checklist to help you gather documents and information that are required to file the UHT.

If you have any questions, please reach out and book an appointment with our team.

UPDATE:

UHT Filing Required if you are on title to someone(parent)’s home or guarantee someone(child)’s mortgage

The deadline for submitting the Underused Housing Tax (UHT) is fast approaching on October 31, 2023. If you are listed as a co-owner of someone else’s home (including your parents’) or have co-signed for someone else’s mortgage (including your child’s), it is imperative that you complete and submit your UHT application before the looming deadline of 10/31/2023. I had been hopeful that the Canada Revenue Agency (CRA) would furnish us with more details on this matter, given its far-reaching implications; however, as of today, no updates have been provided by the CRA. It is worth noting that failing to meet the filing deadline can result in a penalty of $5,000. In my personal view, to ensure compliance and avoid any penalties, it would be prudent to complete your UHT filing by the end of this month.

Below is a LinkedIn article posted by Hugh Neilson, FCPA, FCA, TEP, a well-known Canadian tax expert. I think he has explained the situation very well. If this rule impacts you, please contact our office immediately.

Canadian Tax Tips 2023

Happy New Year! Believe it or not, another year has gone by and we are already in 2023. At the beginning of the year, I have summarized the following tax tips and benefits that may affect you, your business, and your family:

Apply Now: Alberta Affordability Payments

Application for the $600 affordability payments to offset inflation is now open. Families with household incomes under $180, 000 and have dependent children under the age of 18 may apply. Albertans 65 years or older with incomes under $180, 000 and who do not receive the Alberta Seniors Benefit are also eligible. Please apply at https://affordability.alberta.ca/welcome or in person at a registry or Alberta Supports location.

For more information, please watch this video:

Canada Dental Benefit

This dental benefit has been on the news. It provides tax- free payments to cover dental expenses for children under 12 years old with no dental coverage. In my opinion, the benefit is not significant and it’s hard to qualify for.

There are two payments for this program. Period 1 is from December 1, 2022 to June 30, 2023; and Period 2 is from July 1, 2023 to June 30, 2024. The benefit per child per period ranges from $260 to $650 depending on the family’s income level.

To qualify, the family adjusted net income needs to be under $90,000 (Line 23600). Period 1 is determined using 2021 income and Period 2 using 2022 income. If your family’s income is just a little bit over the $90,000 threshold, consider purchasing RRSP to reduce your income level.

I would not however recommend buying large RRSPs just to get this benefit as it may not be worthwhile.

The application is now open and you can apply through My CRA Account. For more information, visit: https://www.canada.ca/en/revenue-agency/services/child-family-benefits/dental-benefit.html

Tax-Free Saving Account

The 2023 contribution room for TFSA is $6,500. For people who have never contributed, the cumulative contribution room is $88,000. If you are planning to contribute to TFSA, it’s better to do it in the beginning of the year than at the end of the year. For example, with a GIC rate at 5% per annum, you have earned yourself an extra $325 tax-free interest by contributing $6,500 earlier in January than in December. Yes, time is money! Please check your TFSA contribution room through your CRA Online Account before contributing. CRA charges 1% per month for over-contribution.

Don’t Forget to Pay Installments

With the current interest hike, CRA now charges 8% annual interest rate compounded daily for underpaid or overdue tax installments. It could result in nasty interest charges if you are not on top of these payments. Unlike individual taxpayers who are receiving installment reminders, CRA do not send out any reminders to corporations and GST/HST registrants. Business owners are responsible for making their own installments on time. For all our corporate clients, we have been including the installment schedule in the year end letter. Please check there to avoid unnecessary CRA interest.  If you are still unclear, send us an email or give us a call before it’s too late.  

Real Estate

Anti-Flipping Rule

This new residential real estate anti-flipping rule that was first introduced in 2022 budget is now law. Effective January 1, 2023, the gain for any residential property that was disposed of in 2023 with a holding period of less than 365 days will be deemed to be business income (100% taxable) not capital gain (50% taxable). There are exceptions to this new rule such as when the cause of the disposition is due to a life event. The other implication of being a business income is that GST/HST need to be considered on the transaction.

Underused Housing Tax

Effective January 1, 2022, the Underused Housing Tax is 1% annual tax on the taxable value or fair market value of the real estate property. This tax will mostly apply to non-citizens or non-permanent residents of Canada; however, it could impact Canadian residents. Underused housing is defined as less than 180 days of occupancy. The rule is quite complex and there are many exemptions. Please contact our office if you think you might be impacted by this rule.

Multi-Generational Home Reno Credits

Effective January 1, 2023, the Canadian government has introduced a new multi-generational home renovation credit to help Canadians take care of their seniors. It allows 15% of a maximum $50,000 eligible renovation cost that is used to build a second unit in an existing home for related seniors who are over 65-years-old or with disability. The unit must have a private entrance, a kitchen, a bedroom, and a bathroom. 

If you have any questions, please reach out and book an appointment with our team.

Thinking about selling your business? 4 Keys to sell it tax-free

Sarah started her nail spa shop from scratch in the early 1990s, after 20 years of hard work, the business has grown tremendously, and the shop is worth roughly about $500,000 today. Sarah is in her late fifties now and wants to sell her shop. What are the tax liabilities and how can she get most out of the sale? Many business owners like Sarah, after working their whole life in the business, with no other pension income, they are counting on the sale of the business to support their retirement life.

The good news is, in Canada, there is $816,000 lifetime capital gain deduction for each individual, who realize a capital gain upon disposition of the shares of a qualified small business corporation. (This limit is indexed annually as of 2015).

However, not all sales can be qualified for the deduction, you need to plan your sale ahead of time, and do it right. The followings are the 4 keys to help business owners achieve tax free sale of the business:

  1. Only disposition of shares of the small business corporation can be qualified to tax free sale. It means the business must be an incorporated business. Consult Ada Jing Zhang Professional Corp for sale of a sole proprietorship.
  2. It must be the sale of shares. If the business only sold the assets, it cannot be qualified.
  3. During the 24 months preceding the disposition: the share belonged only to the taxpayer or persons related to him/her and more than 50% of the FMV of the assets of the corporation were used in an active business
  4. At the time of the disposition: 90% of the FMV of the assets of the corporation are used in an active business.

Each business has its own situation, if you are planning to sell your business in the next couple of years, please contact Ada Jing Zhang Professional Corp. for complete evaluation and professional tax advice.