Do you own a second property in Canada? Have a family trust set up? If so, the Underused Housing Tax and newly expanded trust reporting rules could apply to you this tax season. Nicole Ewing, Director, Tax and Estate Planning, TD Wealth, joins Kim Parlee to clarify what people need to know so they’re filing the right things at the right time.
*On March 28, the Canada Revenue Agency (CRA) announced it will not require bare trusts to file a T3 return for the 2023 tax year. You can visit the CRA website for more information.
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* Do you own more than one property in Canada? Do you have a trust set up? If so, the Underused Housing Tax and expanded trust reporting rules could apply to you this tax season. That means there are specific returns that you'll be required to file.
- Nicole Ewing, Director of Tax and Estate Planning, TD Wealth, joins me now with what you need to know so you're filing the right things at the right time. Nicole, it is always a pleasure. Let's just jump right in. Let's start with the Underused Housing Tax. Remind us, what is it? And who does it apply to?
* So the Underused Housing Tax is a 1% tax on the value of property that is deemed to be underused or vacant. It was originally thought that it would only apply to non-residents-- so non-Canadians, non-residents. And when you say, "who does it apply to," it can be a little bit tricky, because it applies to people in ways that they didn't necessarily think it would.
- So even if you are a Canadian resident, Canadian citizen who owns property, you may be caught by these rules if you're holding that property in a particular way. So, for example, if you're holding it in trust for somebody or through a partnership, you might be caught by these rules. It's a little bit surprising, because I feel like this is the year of the trust, and the year of the bare trust, and where everybody's learning a little bit about these different sorts of relationships.
- And so the Underused Housing Tax might apply to someone, for example, who is on title to their parents' home-- if they were added on for ease of convenience to be able to help mom and dad work through the property, or to ease probate, or the administration of the estate-- they've been added on, they might be caught by these. And so, too, if the parents were added on to the children's title, for example, for financing purposes or ways to protect that property, they might be considered trustees for the purpose of these rules and caught by them as well.
* Now, I understand as well that there might be some work where the government might be looking to narrow the application of some of these things, or-- or is that coming?
* That's true. So this is where we have to think about the different years. So the rules came into effect in 2022-- lots of confusion. So the first filing would be due for 2023. They are looking at clarifying, I'll say, some of those situations that I just mentioned so that the rules are not applying to that.
- Now, that has been proposed. So legislation amendments have been proposed that would allow, or, rather, restrict the rules to not apply in those situations. Those rules have not yet been introduced or passed. So at the moment, they are still proposed, and we look forward to getting clarity on that. But we don't yet have it.
- So for the 2022, if at the end of the year, December 31, you were on title to one of these properties, and that really is the test-- is your name on title? There might be other ways that you would fall in there. But for certain, if your name is on the land registry system, your name appears there, you will be regarded as an owner for the purpose of these rules as at year end.
- And if you are on there for December 31 of 2023, you are certainly going to be caught by these rules and need to apply. Now, this is going to be-- it's a little bit of a strange test. So do you own the property? So is it a residential property? Very, very broad definition.
- Are you the owner of this property? Again, a fairly broad definition. And then, can we get you exempted out of it? The new rules that are intended to narrow that will get you out of the exemptions. But at the moment, you are caught by these rules and will need to file your Underused Housing Tax returns for both 2022 and 2023. The rules were extended, the filing deadline was extended for 2022 tax year, but that deadline is now approaching for both 2022 and the 2023 tax year. Both need to be filed this year.
* And that deadline, I think, was April 30, upcoming?
* April 30, the deadline. And that's for 2022 and 2023-- we have a tax filing deadline of April 30, 2024. There's a specific form that needs to be filed. It's the UHT-2900 Underused Housing Tax Return and Election Form. Now, the CRA, because there have been a whole lot of questions about this, do have a fairly well-built-out Q&A section on their website that I would encourage people to go to. And it does have dropdowns of examples goals of, would this be a situation where I would likely be caught? So you can see if you can find yourself in those scenarios for a little bit more clarity. But it is still a bit of a fuzzy situation for many people.
* Yeah. At the end of the day, got to do it. OK, I want to talk about-- we've got about three minutes here, Nicole, but I also want to talk about trusts, and who needs to file that T3 return if it's coming out. The deadline also is earlier than some people may think. It's not April 30. And maybe also, again, who-- because this is some of this new thing when we talked about bare trust before, I know some people who might be having a joint account with their parents to help them out with stuff suddenly may have to do this.
* Exactly. So if you had to file for the Underused Housing Tax because you're on title, you probably are going to have to file as a trustee for the new trust reporting rules as well. The previous reporting rules in terms of who needed to file a T3 Trust Return were relatively limited. They have been expanded greatly and now apply explicitly to bare trust situations.
- So if you are on title for a parent, on a parent's account, on a joint account-- for example, for ease of trading-- you may be caught by these rules. Certainly, if you are on a family trust document and you're the trustee, you might be caught by these rules. A lot of confusion out there again. And we are looking for clarity from CRA.
- But a T3 Trust Return essentially needs to be filed if you are the trustee of any sort of trust where your name is on title and you don't have full beneficial ownership of that property, particularly when we look at adult children and their parents. This is due April 2. So it's a month earlier than the filing deadline for individuals. So this will likely catch a lot of people off-guard if you're not used to needing to file a trust return. April 2 is the due date, and it is quickly approaching.
* Yeah. And I'm going to ask a really dumb question-- who pays the fine? The person who didn't file is obviously the one who pays the fine.
* It's the person who didn't file, because you are regarded as the trustee. And in both the Underused Housing Tax and in this situation, the onus is on you as the individual to be filing. So it may very well be that you have multiple people filing these returns for the same property-- so the Underused Housing Tax, if you've got multiple children on there on title, they may each need to be filing one.
- Similarly, if you are the trustee of a trust for your parent, you may have multiple accounts. Those might be regarded as multiple trusts. You need to be filing there. If you don't file these on time, and this is where we're generally recommending people to err on the side of filing, because the penalties are quite large.
- It is the greater of $2,500 and 5% of the highest value of that account during the year. And that's for property that you don't even regard as your own and you have no beneficial ownership in. So simply by having your name on title, you have this obligation to file. Failure to file results in not only the penalties for not filing, but if there is, in fact, any tax overdue that needs to be paid, we're now seeing a 10% interest being paid on overdue taxes as well. So this is getting to be quite an expensive proposition for people.
* Yeah. That's steep. That's an understatement. OK, I've only got about 30 seconds, Nicole, but I guess the next step is if you're not sure what to do, just talk to somebody.
* And this is getting progressively harder as well. And wish I had better news for people. Usually I would say, call your investment advisor. Call your accountant. Have everyone speak to each other and get on the same page.
- It is very difficult to do that right now. We're having accountants who are simply not taking on additional business, lawyers who are sending people to accountants, investment advisors who are really looking for that clarity that we simply don't have. Do your best.
- Make best efforts so at a very minimum, you're not going to be subject to penalties for failing to try to comply with your efforts. Reach out to those who might be able to provide some guidance, look at the CRA website, see if you can get some information there. But, really, we're in a best effort situation, and it is very difficult to get clarity on this topic.
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* Do you own more than one property in Canada? Do you have a trust set up? If so, the Underused Housing Tax and expanded trust reporting rules could apply to you this tax season. That means there are specific returns that you'll be required to file.
- Nicole Ewing, Director of Tax and Estate Planning, TD Wealth, joins me now with what you need to know so you're filing the right things at the right time. Nicole, it is always a pleasure. Let's just jump right in. Let's start with the Underused Housing Tax. Remind us, what is it? And who does it apply to?
* So the Underused Housing Tax is a 1% tax on the value of property that is deemed to be underused or vacant. It was originally thought that it would only apply to non-residents-- so non-Canadians, non-residents. And when you say, "who does it apply to," it can be a little bit tricky, because it applies to people in ways that they didn't necessarily think it would.
- So even if you are a Canadian resident, Canadian citizen who owns property, you may be caught by these rules if you're holding that property in a particular way. So, for example, if you're holding it in trust for somebody or through a partnership, you might be caught by these rules. It's a little bit surprising, because I feel like this is the year of the trust, and the year of the bare trust, and where everybody's learning a little bit about these different sorts of relationships.
- And so the Underused Housing Tax might apply to someone, for example, who is on title to their parents' home-- if they were added on for ease of convenience to be able to help mom and dad work through the property, or to ease probate, or the administration of the estate-- they've been added on, they might be caught by these. And so, too, if the parents were added on to the children's title, for example, for financing purposes or ways to protect that property, they might be considered trustees for the purpose of these rules and caught by them as well.
* Now, I understand as well that there might be some work where the government might be looking to narrow the application of some of these things, or-- or is that coming?
* That's true. So this is where we have to think about the different years. So the rules came into effect in 2022-- lots of confusion. So the first filing would be due for 2023. They are looking at clarifying, I'll say, some of those situations that I just mentioned so that the rules are not applying to that.
- Now, that has been proposed. So legislation amendments have been proposed that would allow, or, rather, restrict the rules to not apply in those situations. Those rules have not yet been introduced or passed. So at the moment, they are still proposed, and we look forward to getting clarity on that. But we don't yet have it.
- So for the 2022, if at the end of the year, December 31, you were on title to one of these properties, and that really is the test-- is your name on title? There might be other ways that you would fall in there. But for certain, if your name is on the land registry system, your name appears there, you will be regarded as an owner for the purpose of these rules as at year end.
- And if you are on there for December 31 of 2023, you are certainly going to be caught by these rules and need to apply. Now, this is going to be-- it's a little bit of a strange test. So do you own the property? So is it a residential property? Very, very broad definition.
- Are you the owner of this property? Again, a fairly broad definition. And then, can we get you exempted out of it? The new rules that are intended to narrow that will get you out of the exemptions. But at the moment, you are caught by these rules and will need to file your Underused Housing Tax returns for both 2022 and 2023. The rules were extended, the filing deadline was extended for 2022 tax year, but that deadline is now approaching for both 2022 and the 2023 tax year. Both need to be filed this year.
* And that deadline, I think, was April 30, upcoming?
* April 30, the deadline. And that's for 2022 and 2023-- we have a tax filing deadline of April 30, 2024. There's a specific form that needs to be filed. It's the UHT-2900 Underused Housing Tax Return and Election Form. Now, the CRA, because there have been a whole lot of questions about this, do have a fairly well-built-out Q&A section on their website that I would encourage people to go to. And it does have dropdowns of examples goals of, would this be a situation where I would likely be caught? So you can see if you can find yourself in those scenarios for a little bit more clarity. But it is still a bit of a fuzzy situation for many people.
* Yeah. At the end of the day, got to do it. OK, I want to talk about-- we've got about three minutes here, Nicole, but I also want to talk about trusts, and who needs to file that T3 return if it's coming out. The deadline also is earlier than some people may think. It's not April 30. And maybe also, again, who-- because this is some of this new thing when we talked about bare trust before, I know some people who might be having a joint account with their parents to help them out with stuff suddenly may have to do this.
* Exactly. So if you had to file for the Underused Housing Tax because you're on title, you probably are going to have to file as a trustee for the new trust reporting rules as well. The previous reporting rules in terms of who needed to file a T3 Trust Return were relatively limited. They have been expanded greatly and now apply explicitly to bare trust situations.
- So if you are on title for a parent, on a parent's account, on a joint account-- for example, for ease of trading-- you may be caught by these rules. Certainly, if you are on a family trust document and you're the trustee, you might be caught by these rules. A lot of confusion out there again. And we are looking for clarity from CRA.
- But a T3 Trust Return essentially needs to be filed if you are the trustee of any sort of trust where your name is on title and you don't have full beneficial ownership of that property, particularly when we look at adult children and their parents. This is due April 2. So it's a month earlier than the filing deadline for individuals. So this will likely catch a lot of people off-guard if you're not used to needing to file a trust return. April 2 is the due date, and it is quickly approaching.
* Yeah. And I'm going to ask a really dumb question-- who pays the fine? The person who didn't file is obviously the one who pays the fine.
* It's the person who didn't file, because you are regarded as the trustee. And in both the Underused Housing Tax and in this situation, the onus is on you as the individual to be filing. So it may very well be that you have multiple people filing these returns for the same property-- so the Underused Housing Tax, if you've got multiple children on there on title, they may each need to be filing one.
- Similarly, if you are the trustee of a trust for your parent, you may have multiple accounts. Those might be regarded as multiple trusts. You need to be filing there. If you don't file these on time, and this is where we're generally recommending people to err on the side of filing, because the penalties are quite large.
- It is the greater of $2,500 and 5% of the highest value of that account during the year. And that's for property that you don't even regard as your own and you have no beneficial ownership in. So simply by having your name on title, you have this obligation to file. Failure to file results in not only the penalties for not filing, but if there is, in fact, any tax overdue that needs to be paid, we're now seeing a 10% interest being paid on overdue taxes as well. So this is getting to be quite an expensive proposition for people.
* Yeah. That's steep. That's an understatement. OK, I've only got about 30 seconds, Nicole, but I guess the next step is if you're not sure what to do, just talk to somebody.
* And this is getting progressively harder as well. And wish I had better news for people. Usually I would say, call your investment advisor. Call your accountant. Have everyone speak to each other and get on the same page.
- It is very difficult to do that right now. We're having accountants who are simply not taking on additional business, lawyers who are sending people to accountants, investment advisors who are really looking for that clarity that we simply don't have. Do your best.
- Make best efforts so at a very minimum, you're not going to be subject to penalties for failing to try to comply with your efforts. Reach out to those who might be able to provide some guidance, look at the CRA website, see if you can get some information there. But, really, we're in a best effort situation, and it is very difficult to get clarity on this topic.
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