What is everyone doing in regards to filing the Underused Housing Tax and Election Form? Will you be filing for clients or encouraging them to file it themselves? How will you be contacting clients to determine if they apply?
How will you be addressing any liability issues regarding the significant penalties?
I am filing for several clients - clients where I do the bookkeeping and know their situation. My clients would never file for themselves.
As with any other filing, I ask my clients whether they WANT me to file their UHT returns. If so, they must provide all the required info, and pay me for this extra service. So far, every time I’ve asked this, the client says, “what’s that?” and I have to explain why they are required to file.
And, CRA has really streamlined the filing process since the beginning of the year. It’s still manual entry on the website, but only a few simple questions to answer - at least so far - all my clients are exempt from paying the tax.
The most tedious part IMHO is having to set up an RU account for corporate clients (and that’s no more difficult than setting up an RP or RZ account).
If you mailed or faxed in the UHT Return the CRA automatically set up the RU account in the client’s profile… I think I set up one RU account and electronically filed one UHT return back in April and faxed about 20 after discovering the online return was no easier than the manual return. At least with the manual return I have a document containing much of the relevant information I can refer back to for future years. A couple of phone calls from the CRA this summer for dumb things (ie house addresses on streets that don’t have postal codes) but they have all been assessed now.
One of my client has sold primary residence to his own corporation now in this case does the corporation requires to file UHT Return? and the F.Y year end is June 30th what will be the deadline for it?
Yes, going forward the corporation will need to UHT returns.
Whether there is a requirement to file for the 2022 year depends on the date the house was sold to the corporation.
The UHT is filed on a calendar year basis regardless of the corporation’s fiscal year end. The Underused Housing Tax Act is completely different from the Income Tax Act.
We are paper filing for any client who wants us too, but mostly we are encouraging them to file their own.
We require all clients to be assessed for UHT risk, and then we advise them in writing of our belief that they need to file and offer support/filing as a service.
Don’t be shy to bill for this work either! We increased our rate for all clients by a small amount for simple assessments (and bill on time for complicated ones), plus we use the same flat fee for doing the returns that Baker Tilly published:
At that time, I agree - the online return WAS no easier. But they have completely changed it at some point between May and September. The last 2 I filed, it required only one question answered by a check-box - the first of the many possible exemptions. After answering “yes” or “no” (whichever indicated that exemption applied), the process skipped right to “submit” - no need to even fill out a zero for the amount of tax owing.
And, I think it was saving the info for each property (address, legal description, property tax roll number), so that you don’t have to enter it again next year.
On the other hand, you are correct - the online process does not give you an option to save a copy for your records.
Is every husband/wife farm/business partnership that owns a home required to file the UHT? Does the first refrence to “or as a partner of a partnership” not make the second reference void? The following is from UHTA Definitions:
excluded owner of a residential property for a calendar year means a person that is on December 31 of the calendar year
(b) an individual who is a citizen or permanent resident, except to the extent that the individual is an owner of the residential property in their capacity as a trustee of a trust (other than a personal representative in respect of a deceased individual) or as a partner of a partnership;
specified Canadian partnership, in respect of a calendar year, means
(a) a partnership, each member of which
(ii) would be, on December 31 of the calendar year, an excluded owner if paragraph (b) of the definition excluded owner were read without reference to **“or as a partner of a partnership”;
I read this as a circular reference.
My understanding is “yes” a husband/wife farm/business partnership that owns a home is required to file a UHT return.
An excluded owner (per the definition you provided) does not have an obligation to file a UHT return. An individual who is a citizen or permanent resident in their capacity as a partner or a partnership is not considered to be an excluded owner.
A Specified Canadian Partnership is also defined in the act as you pointed out. A specified partnership includes a partnership comprising of individuals who are citizens or permanent residents of Canada.
Unfortunately, a Specified Canadian Partnership is not considered to be an Excluded Owner. There is an exemption from paying the UHT, however, if the property or properties are owned by a Specified Canadian Partnership. So essentially, no UHT is payable but there exists a requirement to file the return.
I played it safe and filed UHT returns for all of these types of properties where a husband and wife or other Canadian partners hold farm or business properties that include a residential element, and operate a business partnership. If the husband/wife own a house separately from the farm property I did not file UHT returns for those separate properties.
I believe that a farming couple that lives in a principal residence on the farm and operates the farm together has a partnership. It is a partnership because they operate or carry on business, in common, with a view to profit. But living in the principal residence is not part of the farming business. And if they own a second farm, which also has a residence or place of dwelling on it and they rent it out, it is not part of the farm business either as evidenced by the T776.
Income Tax Folio S4-F16-C1, What is a Partnership?
Determining the existence of a partnership
1.6 Whether a partnership exists is a mixed question of fact and law. The fact that a partnership is formally registered does not necessarily mean that a partnership actually exists. In partnership law, a declaration of this type does not prevail over the actual facts of a situation (see ¶1.10).
1.7 In Continental Bank, Backman and Spire Freezers, the Supreme Court of Canada used the provincial and territorial partnership statutes to identify three fundamental criteria for determining whether a partnership exists in the common law provinces. To conclude that a partnership exists in the common law provinces, the Court affirmed that one must demonstrate that two or more persons are:
- carrying on business;
- in common;
- with a view to profit.
This is my conclusion:
(renting out a house on farm property is not a business and certainly living in a principal residence is not part of a business with a view to profit.)
Perhaps not, and I’m sure they will eventually clarify or update the regulations at some point with a definitive answer.
What about a house on the farm occupied by a farm employee or ranch hand who receives a taxable benefit for employer provided housing?
I have a 4 way partnership (all Canadian citizens) that own a mini-storage facility. The property also includes a tenant occupied house that none of the owners live in. Technically speaking a “mini-storage” endeavour is all rental income.
For me, I’d rather submit a UHT return and later find out that it was not required than not submit the return and later learn one was required. The former doesn’t come with any non-filing penalties.
That certainly is the approach Baker Tilly are taking. After all, one UHT return for a partnership is worth $1,000 of extra income.
For me, the hardest part is explaining to clients whether this filing is “required”, because nobody knows for sure. If I am doing the filing, I’m going to charge my clients for it, and most people don’t want to pay for something that isn’t required.
My guess is that CRA doesn’t want to give clear instructions because the legislation is so vague. They want Finance to “write the rules” more clearly, or wait until the TCC makes a ruling which will effectively establish where the line is (i.e. when someone takes CRA to court to refute the late filing penalty).
I tell my clients that I am not filing a UHT return for the one rental property jointly owned between myself and my wife, but I also explain that I am willing to go to court to defend my position, and refute the $5,000 penalty. Some of my clients feel the same way, and choose not to file. Some don’t want to risk the possibility of a $5,000 penalty, or don’t want to go to court, so they pay me the $100 I’m charging to file their UHT return. But, I wouldn’t file a return without the client’s consent - I assume you ( @snoplowguy ) meant that you are telling clients they must file, and then they get you file it.
I did not file any UHT returns for co-owners of rental properties.
I drew the line at individuals who report self employed income as a partnership and there were residential units (apartments, houses etc) located on the property that is being used by the partners to earn business or farm income.
We have some farm clients that provide on-site lodging for several migrant workers during the summer & fall months. I’m not taking a chance on betting the wrong way.
For the most part the clients wanted us to file the UHT returns on their behalf. We don’t charge Baker Tilly prices, but I also make sure the client does most of their own leg work regarding the information gathering (PIN printouts, property tax bills etc). I don’t mind completing the return but the client needed to make sure I had all of the information and documentation necessary to file the return.