UHT not meant to generate extra tax revenue, CRA says

Updated to include a statement provided by the Department of Finance

The CRA says the underused housing tax (UHT) isn’t intended to generate extra tax revenue to be used to help fund Ottawa’s housing affordability initiatives. Instead, it’s a tool to make housing more available to Canadians.

That statement contradicts one of the government’s previously stated goals for the 1% tax on underused homes: to direct the tax’s revenue toward housing affordability measures.

CRA spokesperson Kim Thiffault confirmed in an email to Advisor.ca that the agency had assessed $49 million in UHT as of March 4, with 578,910 UHT returns processed so far.

However, the CRA has already spent more than that — $59 million, including hiring 350 people — to administer the tax as of Feb. 14.

As first reported by Blacklock’s Reporter, Conservative MP Adam Chambers cited the figures during a Standing Committee on Finance meeting on March 21.

When the UHT was first announced in Budget 2021, the government projected the tax would generate $200 million in its first year.

According to Thiffault, “the strategic intent of the UHT is not to collect additional tax dollars, but is instead one of the many tools the Government of Canada is using to combat the housing crisis in Canada.”

Advisor.ca asked the Department of Finance what the government’s strategic goals are for the UHT and requested updated projections of the revenue it expected the tax would generate. Caroline Thériault, spokesperson for the department, said the projections had not changed since 2022.

“For too many, especially younger Canadians, the dream of homeownership and of a good middle class life seems out of reach,” Thériault said in a statement. “The [UHT] is one of many tools the government is deploying to ensure homes in Canada are for Canadians to live in — and not a speculative financial asset class for foreigner investors. The [UHT] is designed to ensure foreign, non-resident owners who do not live in Canada pay their fair share.”

David Crawford, national indirect tax leader with accounting firm Achen Henderson in Calgary, said it’s frustrating that “the federal government has managed to spend $59 million in administration thus far. This seems significant.”

In the 2021 budget document, the government said the $700 million the UHT would raise in its first five years would “help to support the government’s significant investments to make housing more affordable for all Canadians.” The new tax was “one tool among several to ensure that Canada’s housing market is a place to grow for Canadians starting their families and building their future.”

A Finance official estimated last year that the UHT program would generate $875 million in UHT between 2022–23 to 2027–28, and $140 million annually thereafter.

While the UHT has cost the CRA $59 million to administer so far, it’s almost certainly cost Canadians affected by the UHT much more to comply.

“CPA Canada canvassed its Small and Medium Practitioner Tax Committee members on the fees charged to clients for completing the UHT-2900,” said John Oakey, vice-president of taxation with CPA Canada in Dartmouth, N.S. “The average fee ranged from $500 to $750 with some fees in excess of this range to provide advice for more complex situations.”

Crawford said that his firm charges from $500 up to $2,000 for each property with two owners, which requires two UHT returns, in the first year of filing. Assuming no significant changes, subsequent-year filings would cost $500.

“The administration and roll-out of the UHT regime was far less than ideal,” Crawford said. “[The UHT] caught many residential property owners by surprise just over a year ago when the deadline for the first return for the 2022 calendar reporting year being the same as the personal tax filing deadline of April 30.”

Last year, the CRA twice extended the deadline for filing a UHT without penalty. The deadlines for both the 2022 and 2023 UHT returns are now April 30, 2024.

Crawford did praise the CRA for providing useful guidance on how to complete and file a UHT return, including FAQs, and an online self-assessment diagnostic tool to help homeowners determine if and how the UHT affects them.

How we got here

The UHT is an annual 1% tax on the ownership of vacant or underused housing in Canada, effective in 2022 and subsequent years.

While the UHT mostly affects foreign owners of Canadian residential property, a Canadian who owns a property through a trust, private corporation or partnership has an obligation to file a UHT return. If the trust, corporation or partnership is substantially or entirely Canadian, they may qualify for an exemption from the UHT as a “specified” Canadian corporation, Canadian partnership or Canadian trust. However, these owners must still file a return or face penalties.

To provide affected homeowners more time to understand and comply with their 2022 tax UHT filing obligations, the CRA announced on March 27, 2023, that it would give tax filers a six-month extension to file the 2022 UHT return without penalties. Then, on the same day as the Oct. 31 extended deadline, the CRA announced a second extension for the 2022 tax year until April 30, 2024, the same deadline date for the filing of the 2023 UHT return.

In the fall economic statement, the government proposed expanding the definition of “excluded owner” — a taxpayer who doesn’t have an obligation to file a UHT return — to include these specified Canadian corporations, partnerships or trusts.

However, the proposed change would only apply for 2023 and subsequent years. Specified Canadian entities would still have a filing requirement for 2022.

The federal government is also proposing to reduce penalties associated with the failure to file a UHT return to $1,000 for individuals from $5,000 currently, and to $2,000 for a corporation from $10,000.

The proposed change would be effective retroactively to 2022 and subsequent years.

While the proposed changes have not been enacted in legislation, the CRA appears to be prepared to administer the UHT rules for 2023 and onward under the proposed rules.

On Feb. 29, the CRA provided taxpayers with the 2023 UHT return, which included a revised definition of excluded owner that aligned with the government’s proposed changes to the UHT. On March 8, CRA published updated guidance to “illustrate how the proposed amendments would apply.”

However, the CRA said the guidance shouldn’t be taken as a statement “that the proposed amendments will in fact be enacted into law in their current form.”