Underused Housing Tax and Farm Corporations or Partnerships
The Underused Housing Tax (“UHT”) came into force retroactively to January 1, 2022. The tax requires non-resident, non-Canadians to pay a tax of 1% on the value of residential property owned in Canada.
Many farm families are not aware that UHT rules could apply to them.
Consider the situation of an Alberta corporation or partnership which conducts a farming business and owns a number of residential properties. The properties could include the owners’ house or housing for employees.
Could the UHT apply to Canadian farm corporations or partnerships?
The new UHT excludes certain “excluded owners” from the application of the tax and the filing of the UHT return. These include Canadian citizens and permanent residents of Canada. Excluded owners also include registered charities, the Government of Canada or a province and its agents, and corporations listed on a public exchange, among others.
Unfortunately, private corporations or partnerships are not on the list of “excluded owners”. This means that Canadian farmers or ranchers who are partners in a farm partnership or own private corporations that hold residential property are subject to the UHT rules.
While farm corporations and partnerships will need to file the UHT return if they own residential property, there are certain excepted persons which do not need to pay the UHT tax. These include “specified Canadian corporations” who must have no more than 10% of their votes or equity value owned by non-Canadian individuals or corporations. “Specified Canadian partnerships” of excluded owners or specified Canadian corporations also do not have to pay the tax.
As a result, many farm corporations or partnerships will fall under the “specified Canadian corporation” or “specified Canadian partnership” exemptions, even if they must file the UHT return.
What do I need to do?
As noted, if you have a farm corporation or partnership with residential properties you will be required to file a UHT return, even if there is no tax payable. This return is due on April 30. Failure to file the return would result in a penalty of $10,000 for each year the return is not filed. It is recommended you consult your tax advisors to ensure that you comply with all requirements.
Our team at Dalke Law Office are here to assist you with your farm transition journey. We're passionate about agriculture and ready to lend a hand where we can. For assistance, please call 403-398-2496 or email firstname.lastname@example.org for an initial consultation.
This blog post is not intended to be relied upon or taken as legal advice or opinion but is of a general nature to highlight matters of interest in this area of law. If you have questions or comments, please contact our office.