Part d of engagement letter

My understanding of underused housing tax is that owning a cottage in canada by a resident is excluded. My concern is what the engagement letter is referring to as an additional tax return - what is this?

(d) If you owned residential property in 2022 other than your principal residence—including a cottage or cabin—you may need to file an additional tax return, even if you are exempt from paying the Underused Housing Tax on that property. This applies even if you owned the property jointly with other individuals, as a trustee through a trust or as a partner in a partnership. The requirements are complex. Please consult with us to determine if you have a filing or tax
obligation. There are significant penalties for failing to file or pay tax owing by the deadline.

See this for clarification from CRA:

We kept this paragraph a bit vague as there are so many nuances to the UHT we want to encourage taxpayers to ask you to review if they have a requirement to file the UHT.

As you know - excluded owners includes the following:

  • an individual who is a citizen or permanent resident of Canada, unless you are an owner of the residential property as either of the following:
    • a trustee of a trust (except if you are the personal representative of a deceased individual, in which case you are an excluded owner of the residential property)
    • a partner of a partnership

Since we do not have a way to identify if a person owns Canadian property as a trustee or as a partner in a partnership we cannot rely solely on the residency status to trigger this paragraph and opted to show it for everyone.

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The additional tax return it’s referring to is the UHT-2900.

Some Canadian individuals will have to file because they are trustees of partners

I suspect a typo above…“or”…not “of”. :slight_smile:

And some Canadians will have to file…and pay…because they own a second residence elsewhere, not in “cottage land” because they have kids or grandkids there, but don’t use it enough to qualify for exclusion. Grrrrr…

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The only time that an individual Canadian could have to pay the tax is if they are first on title because of a trust or partnership.

So in your example of a cottage the Canadian would have to be on title as a partner (meaning they were running that property as a business with another person/people for common profit) AND the partners are not all Canadian (because if they were that would be a specified Canadian partnership), AND they didn’t meet any of the other exemptions.

Similarly with a trust. They would have to be a trustee, AND all the beneficiaries aren’t Canadian, AND they didn’t meet any other exemption.

Not to say those things can’t happen in conjunction, but they do exclude most people from paying the tax.

Also, CRA has said they will not be charging the penalty or interest on the tax (should it be payable), for filings before October 31st so we have some time to figure out how to shoehorn the odd fact pattern into something that will exempt our Canadian clients appropriately.

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To be clear on the “grandparent” situation…I have one like that. :frowning:

And equally annoyingly, with BC now having the Land Ownership Transfer Registry (which the Feds could rather easily check) I have some clients with Alter Ego Trusts (or Joint ones) that own their residences…and they must file although the ownership info is already available publicly. (No tax…just file…at least as far as I’ve determined so far.)

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