The Canada Revenue Agency has mailed postcards to taxpayers about the Underused Housing Tax in a campaign to raise awareness about the little-known federal levy on foreign-owned real estate, which also involves tax-filing obligations for many Canadians. But the move comes after Ottawa announced amendments last fall that would largely exempt domestic homeowners from the reporting requirements.
The UHT, which took effect at the start of 2022, is an annual levy of 1 per cent on homes owned by foreigners and considered underused or vacant.
But the measure has been harshly criticized for also imposing onerous filing requirements on certain Canadian corporations and Canadians who own residential properties through a trust or partnership in some cases. While they don’t generally have to pay the tax, they must file a UHT return – if only to claim an exemption – or face penalties.
Common scenarios involve people who own a rental property with their spouse, which may be considered a partnership, and people who had their name added to the title of a family member’s home, an arrangement that may be deemed a trust.
John Oakey, a spokesperson for Chartered Professional Accountants of Canada, which represents the profession at the national level, praised the CRA for its effort to make Canadians aware of the UHT. But he wondered why the CRA undertook the campaign at this point.
“Why is CRA sending out a message to Canadians to see if the UHT applies to them when the Department of Finance announced changes to the legislation that were going to eliminate the requirement for many Canadians to have to file?” he said.
CRA spokesperson Kim Thiffault said in an e-mailed statement that the postcards are meant to encourage property owners to visit a CRA website with information about the UHT. The page links to an interactive tool that assists taxpayers in determining whether they have to file a UHT return, she said.
“The tool will also lead them to the appropriate technical notices for their specific circumstance,” she added.
The postcard, written in English and French, directs taxpayers to determine whether they have to file a UHT return for the 2022 or 2023 tax years by scanning a QR code that leads to the CRA webpage.
But Mr. Oakey said the postcard left some accountants and their clients perplexed because it came after the federal government proposed amendments in November that would mostly scrap reporting requirements for Canadian homeowners for 2023 and future years after widespread criticism of the broad filing rules.
Still, the government has left intact the obligation for affected Canadian homeowners to file for the 2022 tax year. The cut-off date to do so was initially April 30, 2023, but the CRA pushed it back to Oct. 31 to help taxpayers comply with the complex new rules. The agency then announced – on the very day of the new deadline – that it would further extend it to April 30 of this year, when 2023 UHT returns are also due.
How to avoid a CRA audit in 2024 as complex new rules come into play
Because of the last-minute extension, several accountants told The Globe and Mail early this year that their firms had already filed all their clients’ 2022 returns. And because of Ottawa’s announcement, they also said they wouldn’t be filing 2023 UHT returns for most Canadian clients who had been caught up in the reporting requirements.
Even if those amendments are not law yet, the CRA has updated the 2023 UHT forms to reflect the changes. Among them, the government said it would reduce minimum penalties for failing to file from $5,000 to $1,000 for individuals and from $10,000 to $2,000 for corporations.
At the same time, CPA Canada has long been warning that Canadians who don’t rely on professional tax advice may be unaware that they may need to file a return for the UHT, which the government has presented as a measure targeting foreign real estate investors. For affected domestic homeowners, the obligation to file a 2022 return still stands.
However, it’s unclear whether taxpayers in this group would be able to assess that obligation on their own based on the online information the CRA postcards point to, Mr. Oakey said.
The interactive tool asks taxpayers who identify as Canadian citizens or permanent residents whether they own residential property through a trust or a partnership. A regular taxpayer likely wouldn’t realize that informal family financial arrangements may constitute trusts or partnerships, Mr. Oakey said. Even accountants have struggled to assess which client situations should be deemed a trust or a partnership, an exercise that can require extensive research and tackling complex questions of common law.
“It’s nice for CRA to try to provide awareness,” he said. But “if you got the card, and there’s a chance that you need to file, it would have brought you to a website that wasn’t very helpful with getting you to an answer that you probably couldn’t understand anyway – which makes the campaign fairly useless.”
Erica Alini