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The Underused Housing Tax (UHT) Act

February 9, 2023 12:21 pm Leave a Comment

In June 2022, the Underused Housing Tax (UHT) Act received royal assent and became law. The act imposes a 1% tax on the value of residential properties that are vacant or underused which are owned by entities other than permanent residents or Canadian citizens.

The legislation is retroactive to January 1, 2022 and returns will follow a calendar year reporting period. A return in respect of the UHT will be due April 30 each year, even if no UHT is owed. The first return will be due May 1, 2023 (since April 30 is a Sunday). A late filing penalty of up to $10,000 may be charged on returns filed after the due date, and an additional penalty will be charged on the UHT due that was not paid.

The UHT covers detached homes with up to three units (i.e., single family home, duplex, triplex), semi-detached homes, row houses, and condominiums.

Properties excluded from the UHT include residential properties that are uninhabitable for at least 120 days in the year due to renovations, residential properties if the owner died during the current or previous calendar year, and vacation properties located in rural areas and used personally by the owner, owner’s spouse or common-law partner for at least four weeks in the calendar year.

The Act applies to housing owned directly or indirectly, in whole or in part, by non-residents or non-Canadians. The residency test for this Act is not the same as the income tax concept of residency.

Excluded owners who are not required to file a UHT return include Canadian citizens and permanent residents, registered charities, and co-operative housing corporations, among other entities.

Private companies, partnerships, and trusts are not excluded owners and are not excluded from filing a UHT return if they own a residential property. Therefore, it is important that these entities file a return each year, even if there is no UHT owing.

There are various exemptions that may be claimed to eliminate the tax otherwise payable under the Act. Perhaps, most commonly, a private corporation can claim an exemption as a specified Canadian corporation if it is owned less than 10% by foreign individuals or foreign corporations. Partners of partnership and trustees of trusts could also be exempt if they hold an interest in residential property through a partnership or trust.

A UHT return must be filed for owners that are not excluded owners even if an exemption can be claimed to eliminate UHT payable. If a return is not filed, or is filed late, a penalty of up to $10,000 may result. In many circumstances, it is likely that most private corporations holding residential real estate will be required to file a return each year.

The UHT on a vacant or underused residential property is 1% of the home’s value, which is the higher of its most recent sale price or its taxable value. An election may also be filed to use the fair market value determined by an appraiser. Owners with a partial ownership interest in a residential property are each responsible for the UHT based on their ownership interest. The Underused Housing Tax Return and Election Form has recently been released.

We encourage you to reach out to us for further information if you own residential real estate. Please be advised that we will not be filing this return unless requested and it is not part of our year-end file preparation.

The Vacant Home Tax (VHT)

January 24, 2023 1:45 pm Leave a Comment

In an effort to encourage property owners to increase rental supply, governments across the country have explored implementing a Vacant Home Tax (VHT). Most notably, the municipalities of Toronto and Ottawa have taken steps to implement this tax at the municipal level starting in 2022. Hamilton will have the tax in 2023, with tax due in 2024.

Many other local governments have expressed interest in implementing a VHT at the municipal level, including those in the regions of Peel, York, Halton, and Durham. It is therefore important to keep up to date with news from your municipality to ensure you are informed of your obligations.

The VHT is an annual tax that will be levied on vacant properties starting in 2022, with tax payable beginning in 2023. Under this program, all residential property owners are required to declare the status of their property(s) each year, even if they live there and the property is not vacant. Homeowners may delegate the filing of the declaration to a third party.

If a declaration is not made for a property, the property will be deemed vacant by the municipality and subject to the VHT. In addition, fines for not filing a declaration or making false or deceptive statements range from $250 to $10,000 for each instance. It is therefore paramount that a declaration be filed on time with complete and accurate information.

The VHT is calculated as 1% of the assessed value of the property. This means that a vacant property with a value of $1M would attract VHT of $10,000 in a year. As 2022 is the first year the tax applies, the amount would be payable in 2023. The City of Toronto has set the declaration deadline as February 2, 2023 and a payment deadline of May 1, 2023. Property owners will receive a Vacant Homes Tax Notice in March or April 2023.

The declaration includes different types of property status declarations which would be selected at the time of filing depending on your circumstances. For example, the City of Toronto includes declarations such as:

Occupied as principal residence of homeowner,
Occupied as principal resident of a permitted occupant,
Occupied as a tenanted property,
Vacant with an eligible exemption, and
Vacant or deemed vacant / determined vacant

Only properties deemed or determined vacant are subject to the VHT according to the information published by the city. In general, properties must be occupied for six months or more throughout the year to avoid being subject to the vacant homes tax.

Properties may be exempt from the VHT in Toronto if:

The registered owner dies in the year,
There are repairs or renovations which prevent occupation of the property,
The principal resident is in a hospital, long term, or supportive care facility for up to six months,
There is a transfer of legal ownership to an unrelated person,
The unit is required for occupation for at least six months in the taxation year for employment purposes by its owner who has a principal residence outside the Greater Toronto Area, or
There is a court order prohibiting occupancy of the property for at least six months.

As the VHT is being rolled out by different municipalities, the rules may differ by municipality. For example, the declaration deadline for the City of Ottawa is March 16, 2023. Ottawa adds the VHT to your final tax bill due in June. It is important to refer to information published by the municipality governing your property for exact details of this tax.

We encourage you to reach out to us if you own residential real estate for further information. Please be advised that we will not be filing this declaration unless requested.

2021 or 2022 Work Space in the Home Expenses

February 13, 2022 10:07 am Leave a Comment

On January 18, 2022, CRA published additional commentary with respect to claims for workspace in the home expenses on personal income tax and benefit returns.

The additional commentary includes an explanation of how spouses who both worked from home in 2021 or 2022 each calculate their work space in the home expenses using the detailed method.

Temporary Flat Rate Method

The temporary flat rate method, which was new for 2020 tax returns, has been extended for personal tax returns for the 2021 and 2022 tax years. Eligible individuals can claim a simplified expense of $2 per work day (up to $500) on their 2021 and 2022 tax returns.

Work days include days that you worked full-time or part-time hours from home either due the requirement of your employer or voluntarily if your employer gave the option to work from home due to the pandemic. You must have worked from home more than 50% of the time for at least 4 consecutive weeks during the pandemic to be eligible and you are not claiming any other employment expenses on line 22900.

You do not need to calculate the size of your workspace, keep supporting documents, or obtain a signed Form T2200S or Form T2200, from your employer to use this method.

The temporary flat rate method is not available if claims are being made for other employment expenses, such as vehicle expenses, or if your employer reimbursed all of your home office expenses. If your employer reimbursed some but not all home office expenses, you are still eligible to use this method.

Optional Detailed Method

The optional detailed method for home office expenses allows you to claim expenses you paid for the period you worked from home. Eligibility for the detailed method is similar to the flat rate method with the additional requirements that you obtain a completed signed Form T2200S, or Form T2200, from your employer and the expenses claimed are used directly in your work during the period.

The CRA has also published a list of home office expenses for employees and guidance on how to determine your work space use.

If you are expecting to make a claim on your 2021 or 2022 personal tax return using the detailed method, you should reach out to your employer to ensure you get a signed T2200S. In addition, all supporting invoices should be kept to support the claim under the detailed method. To make a claim on your 2021 or 2022 tax return, please complete Form T777S summarizing the home office expenses you incurred during the year.

The CRA has posted eligibility criteria under each method mentioned above to help determine who can claim this benefit.

If you would like our assistance in deciding which method is best for you, please do not hesitate to contact us!

The Upcoming 2021 Federal Budget & Potential Changes in Taxation

March 31, 2021 5:17 pm Leave a Comment

There have been significant changes to the Canadian economic landscape in the years since the 2019 Federal Budget was released. Most notably, the economic effects of the COVID-19 pandemic on the Canadian economy have been immense. The economic support programs introduced by the Federal government have been numerous and come with a significant cost.

Leading up to the 2021 Federal Budget, there has been speculation with regards to how the Federal government will, in effect, pay for the cost of the various economic support programs. Speculation has included changes to the capital gains inclusion rate, principal residence exemption, a wealth tax, and other measures.

The capital gains inclusion rate is the amount of capital gains that are considered taxable, and has been at 50% for the past 20 years. The taxable capital gain, being 50% of the capital gain, is taxed at a taxpayer’s marginal tax bracket according to their income level. For top earners in Ontario who are taxed at 53.53% on their incremental taxable income, capital gains are taxed at 26.765% (50% x 53.53%). There has been speculation that the 2021 Federal Budget will increase the capital gains inclusion rate to 75%. This would mean that an individual in the top marginal tax bracket in Ontario who would previously pay 26.675% on their capital gains would now pay 40.1475% (75% x 53.53%).

The principal residence exemption is, in brief, an exemption to the tax on capital gains which would otherwise result on the sale of an individual’s principal residence. In effect, the appreciation on an individual’s home is not taxed when the exemption is claimed. There is no maximum on this amount, although certain factors may prevent an individual from claiming the exemption. Speculation on changes to the principal residence exemption have included a limit to the exemption and a removal of the exemption.

A wealth tax is a complex and difficult endeavour for the Federal government to undertake. The concept of a wealth tax is not new, but then again, the definitions and legislation will require careful planning to avoid unintended consequences. Probate, an estate and administration tax, taxes the transfer of wealth from one generation to another and varies significantly among the provinces and territories of Canada. Probate may be considered a kind of wealth tax and may be changed by the various provincial budgets or the introduction of a federal estate and administration tax in the upcoming budget.

There are many different ways in which the upcoming 2021 Federal Budget may change taxation in Canada, and while we cannot know for certain what the changes will be until they are announced on April 19^th, certain planning opportunities may be available to mitigate these changes.

If you would like our assistance in exploring potential planning opportunities for your specific tax situation, be sure to contact us.

Update: Work Space in the Home Expenses

December 16, 2020 4:03 pm Leave a Comment

On December 15, 2020, CRA published additional guidance with respect to claims for work space in the home expenses on the upcoming 2020 personal tax return. The guidance outlines details relating to the new temporary flat rate method, new optional detailed method, changes to the claims process, and new eligible expenses.

Temporary Flat Rate Method

The temporary flat rate method allows eligible individuals to claim a simplified expense of $2 per work day (up to $400) on their 2020 personal tax return. Work days include days that you worked full-time or part-time hours from home either due the requirement of your employer or voluntarily if your employer gave the option to work from home due to the pandemic. You must have worked from home more than 50% of the time for at least 4 consecutive weeks during the pandemic to be eligible.

You do not need to calculate the size of your workspace, keep supporting documents, or obtain a signed Form T2200S or Form T2200, from your employer to use this method.

Optional Detailed Method

The CRA has created a simplified Form T2200S and Form T777S as well as a new web calculator. The CRA has also stated that they will accept electronic signatures on Form T2200S, or Form T2200, for the 2020 tax year only.

The CRA has also published a list of home office expenses for employees and guidance on how to determine your work space use.

If you are expecting to make a claim on your 2020 personal tax return using the detailed method, you should reach out to your employer to ensure you get a signed T2200S. In addition, all supporting invoices should be kept to support the claim under the detailed method. To make a claim on your 2020 tax return, please complete Form T777S summarizing the home office expenses you incurred during the year.

If you would like our assistance in deciding which method is best for you please do not hesitate to contact us!

Working from home expenses

December 10, 2020 9:58 am Leave a Comment

As a result of COVID-19, many people have found themselves working from home. You may be asking yourself what, if anything, can I deduct as an employment expense? The 2020 Fall Economic Statement announced that the Home Office Expense Deduction will be simplified due to millions of Canadians unexpectedly working from home because of COVID-19. CRA will allow employees working from home in 2020 due to COVID-19 with modest expenses to claim up to $400, based on the amount of time working from home, without the need to track detailed expenses.

In order for the expense to be deductible, your employer must have required you to pay it, and must not have reimbursed you for the cost. This year CRA will generally not request that employees provide a signed form from their employers, however it is highly recommended that you get in writing that you have been required to work from home and what expenses, if any, your employer has required you to pay. You may do this in an amended employment contract, by you and your employer completing a T2200 Declaration of Conditions of Employment or, at the very least, an email from your employer specifically outlining these conditions.

As an employee required to use space in your home for work, you can deduct the part of your costs that relates to your work space, such as the cost of electricity, water, heating and maintenance. If you are a commission sales person, you can deduct a portion of property taxes and home insurance. However, you cannot deduct mortgage interest or capital cost allowance on certain assets unless you are self employed. Also, if renting, a reasonable portion may be deducted.

Another important note on working from home during these times, is the cost of home office equipment. The employer may pay or reimburse up to $500 towards computer and office equipment required to work from home. Amounts above $500 will be considered a taxable benefit unless the employer maintains ownership. Therefore, it is important to discuss this with your employer prior to the purchase of these items.

If you would like our assistance in deciding whether your home workspace expenses are deductible please do not hesitate to contact us!

Continuing Changes to the Canada Emergency Wage Subsidy (CEWS)

9:56 am Leave a Comment

On November 19, 2020, the passage of Bill C-9 brought several changes to the CEWS program, such as decreasing the wage subsidy rate to 65% and extending the subsidy program to June 2021.

As part of the 2020 Fall Economic Statement released by the Government of Canada on November 30, 2020, the maximum rate under the Canada Emergency Wage Subsidy (“CEWS”) is proposed to be increased to 75%. The new rate would be effective for the period beginning December 20, 2020 and would last until March 13, 2021. The wage subsidy available will still depend on the revenue decline for the business.

If you would like our assistance in applying for the CEWS, be sure to contact us!

Extended Support Through the Canada Emergency Rent Subsidy (CERS)

9:55 am Leave a Comment

Under the Canada Emergency Rent Subsidy (CERS), rent relief is provided directly to tenants and supports businesses, charities, and non-profit organizations until June 2021.

The subsidy provides for a percentage of expenses on a sliding scale of up to 65% of eligible expenses, such as rent and interest on a commercial mortgage with an additional 25% top-up if the organization is temporarily shut down by way of a mandatory public health order.

The subsidy is based on revenue decline, the greater the decline in revenues the greater the amount of the subsidy. The maximum amount of the subsidy is $75,000 per location and an overall maximum of $300,000 per claim period for an affiliated group.

As part of the 2020 Fall Economic Statement released by the Government of Canada on November 30, 2020, the CERS is being extended at its current rate of 65% plus the 25% top-up for an additional three periods. Previously, the current rate was set to change after December 2020. The three additional periods extend from December 20, 2020 to March 13, 2021.

Application for the CERS is available through CRA My Business Account since November 23, 2020 and retroactive applications can be made for any previous period for up to 180 days after that period has ended.

For more information on this program, click here.

If you would like our assistance in applying for the CERS program, be sure to contact us!

Additional Funds Available through the Canada Emergency Business Account (CEBA)

9:54 am Leave a Comment

As part of the 2020 Fall Economic Statement released by the Government of Canada on November 30, 2020, the maximum amount available under the Canada Emergency Business Account (CEBA) has been increased by an additional $20,000 per qualifying business.

Up to $10,000 of the additional $20,000 loan is forgivable if the loan is repaid by December 31, 2022. Therefore, qualifying businesses now have access to a total of $60,000 in interest-free loans with up to $20,000 being forgivable if the balance (i.e., $40,000) is paid back by December 31, 2022.

The government of Canada has also extended the deadline for applying for a CEBA loan to March 31, 2021. Applications are to be done at your financial institution. If you previously applied for the $40,000 CEBA loan and would like to benefit from the additional $20,000 CEBA loan, you will need to submit a new application and attestation to the financial institution that provided you with your original CEBA loan.

It is important to note that one of the conditions for the maximum loan forgiveness to be obtained is that the full amount of the loan must be drawn and used towards “Eligible non-deferrable Expenditures”. This is particularly important if the financial institution has setup CEBA as a line of credit and not advanced the full amount of the loan to the qualifying business. We advise that qualifying businesses who have obtained a CEBA loan verify that the full amount has been advanced by the financial institution before March 31, 2021.

In addition, it is imperative that you carefully read the details within the attestation of the loan application to ensure you meet the details outlined for eligibility.

For more details on frequently asked questions relating to the CEBA program, click here.

If you would like our assistance in applying for the expanded CEBA loan, be sure to contact us!

Canada United Small Business Relief Fund

October 27, 2020 9:22 am Leave a Comment

On October 20, 2020, the Honourable Mary Ng, Minister of Small Business, Export Promotion and International Trade, announced an investment of $12 million in the Canada United Small Business Relief Fund.

Canada United is a national fundraising campaign created by the Royal Bank of Canada (RBC) in collaboration with private sector partners and provincial and territorial chambers of commerce, including the Ontario Chamber of Commerce (OCC).

Starting on October 26, 2020, small businesses can apply online through the Ontario Chamber of Commerce for grants of up to $5,000 to cover the costs of personal protective equipment, make physical modifications to their businesses to meet local health and safety requirements, and enhance their digital or e-commerce capabilities.

Applications are open to small businesses in every part of the country that:

have between $150,000 and $3 million in annual sales;
have up to 75 employees;
are registered in Canada; and
would use the grant to cover the costs of personal protective equipment, make physical modifications to their businesses to meet local health and safety requirements, and enhance their digital or e-commerce capabilities.

Click here to read frequently asked questions.

If you have any questions about the Canada United Small Business Relief Fund, please be sure to contact us!