CRA Interpretation on the Underused Housing Tax

January 26, 2024

As a follow up to the Notices to Licenced Insolvency Trustees (LIT) regarding the Underused Housing Tax (UHT) published by the Office of the Superintendent of Bankruptcy on October 25, 2023 and November 2, 2023 respectively, the Canada Revenue Agency (CRA) provided clarification to the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) on the application of the Underused Housing Tax Act requirements specifically to LITs.

The clarification was provided in a CRA Interpretation letter, copied below, which was sent to CAIRP members via Bulletin on December 13, 2023. 

The CRA provides general guidance on their website on the UHT, including an online self-assessment tool to help determine who must file a return and pay the UHT.

Questions may be directed to CRA by telephone at 1-800-959-5525 or by fax at 1-418-566-0319.

CRA Interpretation

November 21, 2023

Subject:

Underused Housing Tax (UHT) Interpretation

Interpretation and application of the definition of “owner”

Thank you for your correspondence of October 5, 2023, concerning the definition of “owner” in section 2 of the Underused Housing Tax Act (UHTA) and its application to licensed insolvency trustees (LITs).

All legislative references are to the UHTA unless otherwise specified.

Based on our meeting on September 25, 2023, and your correspondence of October 5, 2023, we understand the following:

The Canadian Association of Insolvency and Restructuring Professionals (the Association) is the national association of LITs. LITs are persons who are licensed or appointed under the Bankruptcy and Insolvency Act (the BIA) to administer bankruptcy estates.

Section 71 of the BIA provides that when a bankruptcy order in respect of a bankrupt person is made with an official receiver (or an assignment in respect of a bankrupt person is filed with an official receiver) all property of the bankrupt person (including any real property) immediately passes to and vests in the LIT named in the bankruptcy order or assignment. The bankrupt person ceases to have any capacity to dispose of or otherwise deal with such property.

Subsection 74(1) of the BIA provides, in part, that the LIT may register, in the registry office, the bankruptcy order (or assignment) in respect of the whole or any part of any real property in which the bankrupt person has any interest or estate. The applicable registry office is the one in which, according to the law of the province in which the real property is situated, transfers of title and other documents relating to real property or any interest or estate in real property may be registered. You have advised that where such a registration occurs, the LIT is registered as the owner of the real property in the applicable land registration system.

Subsection 74(3) of the BIA provides, in part, that where a bankrupt person owns any real property, holds any charge registered in a land registry office, or has or is believed to have any interest, estate or right in any of them and a bankruptcy order (or assignment) is registered as described in subsection 74(1) of the BIA, the LIT may file a caveat or caution with the official in charge of the land registry. Further, any registration made after the filing of the caveat or caution in respect of the real property or charge is subject to the caveat or caution unless it has been removed or cancelled under the provisions of the Act under which the real property, charge, interest, estate or right is registered. You have advised that not every provincial land titles Act allows caveats or cautions to be filed.

Interpretation requested

You would like to know how the definition of “owner” in section 2 is applied in each of the following scenarios and the resulting implications for LITs:

Scenario 1 – An LIT registers, in a registry office, a bankruptcy order in respect of the whole or any part of any real property (namely, a residential property) in which a bankrupt person has any interest or estate.

Scenario 2 – An LIT does not register, in a registry office, a bankruptcy order in respect of the whole or any part of any real property (namely, a residential property) in which a bankrupt person has any interest or estate. However, the LIT chooses to file a caveat or caution with the official in charge of the land registry.

Scenario 3 – An LIT does not register, in a registry office, a bankruptcy order in respect of the whole or any part of any real property (namely, a residential property) in which a bankrupt person has any interest or estate. Further, the LIT as the person to whom all real property of the bankrupt person passes to and vests in, does not make any application in the registry office to be registered as the owner of the real property.

Interpretation given

Definition of “owner”

The definition of “owner” is crucial to the operation of the UHT in that it determines a person’s obligations with respect to the tax. For example:

  • subsection 6(3) provides that every person that is, on December 31 of a calendar year, an owner (other than an excluded owner) of a residential property must pay to His Majesty in right of Canada tax in respect of the residential property for the calendar year in the amount determined by formula described therein; and
  • subsection 7(1) provides that a person that is an owner (other than an excluded owner) of one or more residential properties on December 31 of a calendar year is required to file a return for each residential property for the calendar year.

To be clear, only a person that is an owner of a residential property is brought into the scope of subsections 6(3) and 7(1). However, if the person/owner is an excluded owner, they have no obligations under those subsections.

The term “owner” is defined in section 2 as follows:

owner of a residential property means a person that is identified as an owner in respect of the residential property under the land registration system or other similar system applicable where the residential property is located, or that could reasonably be considered to be an owner in respect of the residential property based on such a system, and includes a person that

(a) is a life tenant under a life estate in respect of the residential property,

(b) is a life lease holder in respect of the residential property,

(c) has, under a long-term lease, continuous possession of the land on which the residential property is situated, or

(d) is a prescribed person,

        but does not include

(e) a person that gives continuous possession of all the land on which the residential property is situated to persons referred to in paragraph (b) or (c), or

(f) prescribed person.

The first person mentioned in the definition of “owner” is a person that is identified as an owner in respect of the residential property under the land registration system or other similar system applicable where the residential property is located. The Canada Revenue Agency (CRA) interprets this as referring to a person that is identified as a legal (titled) owner in respect of the residential property in the land registration system. Such a person could be an owner in respect of the residential property in any capacity, including in their own right, as a trustee of a trust, or as a partner of a partnership.

Scenario 1

In Scenario 1, an LIT registers, in a registry office, a bankruptcy order in respect of the whole or any part of any real property (namely, a residential property) in which a bankrupt person has any interest or estate.

You have advised that where a registration of a bankruptcy order occurs, the LIT is registered as the owner of the real property in the applicable land registration system. If that is the case, then the LIT would be a person that is identified as an owner in respect of the residential property under the land registration system or other similar system applicable where the residential property is located. Consequently, in accordance with the definition of “owner,” the LIT would be an owner of the residential property for UHT purposes.

If on December 31 of a calendar year, the LIT is an owner (other than an excluded owner) of a residential property, then the LIT will have to:

  • in accordance with subsection 6(3), pay the UHT for the residential property for the calendar year, unless the LIT’s ownership of the residential property is exempt from the tax for the calendar year; and
  • in accordance with subsection 7(1), file a UHT return for the residential property for the calendar year.

Administratively, the CRA uses the term “affected owner” to refer to a person that is an owner (other than an excluded owner) of a residential property in Canada on December 31 of a calendar year. Refer to Underused Housing Tax Notice UHTN1, Introduction to the Underused Housing Tax, for information on who is an affected owner or an excluded owner. Please note, all Underused Housing Tax Notices and be found on the CRA’s website at Canada.ca/cra-uht.

Where the LIT is an affected owner of a residential property on December 31 of a calendar year, there are various situations where the LIT’s ownership of the residential property may be exempt from the UHT for the calendar year. The following are two exemptions that may be available to some LITs:

  • Exemption for new owners – an affected owner is exempt from paying the UHT for a calendar year if they became an owner of the residential property in the calendar year and they were never an owner the residential property in any of the previous nine calendar years. Refer to Underused Housing Tax Notice UHTN11, Exemption for New Owners, for more information about this exemption.
  • Exemption for trustees of a specified Canadian trust – an affected owner is exempt from paying the UHT for a calendar year if they are an owner of the residential property solely in their capacity as a trustee of a trust that is a specified Canadian trust for the calendar year. Refer to Underused Housing Tax Notice UHTN4, Exemptions for Specified Canadian Partnerships, Trusts and Corporations, for more information about this exemption.

Scenario 2

In Scenario 2, an LIT does not register, in a registry office, a bankruptcy order in respect of the whole or any part of any real property (namely, residential property) in which a bankrupt person has any interest or estate. However, the LIT chooses to file a caveat or caution with the official in charge of the land registry.

Although the property of the bankrupt person passes to and vests in the LIT in accordance with section 71 of the BIA, the LIT has not taken any action to have the legal (titled) ownership of the residential property transferred to them in the applicable land registration system. Therefore, the LIT would not be a person that is identified as an owner in respect of the residential property under the land registration system or other similar system applicable where the residential property is located. Consequently, in accordance with the definition of “owner,” the LIT is not an owner of the residential property for UHT purposes.

Put differently, as long as the bankrupt person continues to be identified as an owner in respect of the residential property under the land registration system or other similar system applicable where the residential property is located, they would remain an owner of the residential property for UHT purposes.

Please note, although the LIT is Scenario 2 does not have an obligation in its own right to pay the UHT or file a UHT return for the residential property for the calendar year, the LIT may nonetheless have obligations under Part 5 of the UHTA to pay amounts and file UHT returns for the bankrupt person.

Scenario 3

In Scenario 3, an LIT does not register, in a registry office, a bankruptcy order in respect of the whole or any part of any real property (namely, a residential property) in which a bankrupt person has any interest or estate. Further, the LIT, as a person whom all real property of the bankrupt person passes to and vests in, does not make any application in the registry office to be registered as the owner of the real property.

Although the property of the bankrupt person passes to and vests in the LIT in accordance with section 71 of the BIA, the LIT has not taken any action to have legal (titled) ownership of the residential property transferred to them in the applicable land registration system. Therefore, the LIT would not be a person that is identified as an owner in respect of the residential property under the land registration system or other similar system applicable where the residential property is located. Consequently, in accordance with the definition of “owner,” the LIT is not an owner of the residential property for the UHT purposes.

Put differently, as long as the bankrupt person continues to be identified as an owner in respect of the residential property under the land registration system or other similar system applicable where the residential property is located, they would remain an owner of the residential property for UHT purposes.

Please note, although the LIT in Scenario 3 does not have an obligation in its own right to pay the UHT or file a UHT return for the residential property for the calendar year, the LIT may nonetheless have obligations under Part 5 of the UHTA to pay amounts and file UHT returns for the bankrupt person.

Additional information

On October 31, 2023, the Minister of National Revenue announced that owners of residential property who are affected by the UHT have until April 30, 2024, to file their returns and pay the UHT for the 2022 calendar year without being charged penalties or interest.

Disclaimer

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the UHTA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) of the additional information provided herein.