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Escape Room 2 – The NEW Real Estate Owner Tax Game – High Stakes Edition

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20 minute read

By Cory G. Litzenberger, CPA, CMA, CFP, C.Mgr – CEO | Director of CGL Tax

Justin time for Tax Season, we have a new version of our most popular game, but this time you are now trying to convert your Real Estate to tax-Freeland.

No those are not typos.

In 2017, we released Escape Room – The NEW Small Business Tax Game – Family Edition after then Federal Liberal Finance Minister, Bill Morneau, finally released the new version of

the Tax on Split Income (“TOSI”) or the so-called “income sprinkling” rules.

This time, in this game, there are fewer unconditional exits, and the stakes are higher.

So just like I said in December 2017:

“These rules are written like a bad “escape room” game. The way these rules are written, everyone is caught… unless you can escape… and the exits are not clearly marked.”

The talking points in the media have been that the Underused Housing Tax (UHT) Act would only apply to non-resident and foreign owners.

However, what they failed to mention is that many Canadians will be caught by the filing requirement and will have to file or face penalties, even if they won’t owe any tax.

This ain’t your Daddy’s failure to file penalty.

Failing to file a UHT return faces a minimum penalty of $5,000 per individual, per property and  $10,000 if you are a corporation.

This makes the failure to file a T1135 Foreign Property form look like pocket change.

So while you may not have to pay any UHT, you still might have to pay even more if you didn’t know you had to file it already this tax season because:

  • the Underused Housing Tax Act is not part of the Income Tax Act;
  • there are requirements to file even if you don’t owe;
  • it is due on April 30 irrespective of your ordinary income tax filing deadline
  • the filing is entirely separate from any other tax filing; and
  • at the time of this article’s publication, it cannot be e-filed – it must be filled out and sent manually.

The prescribed Form UHT-2900 only came out on January 31, 2023, and applies to 2022.

As a result, you will need to figure out if you must file it by April 30 this year or face a minimum $5,000 penalty, per person, per property, for failure to file.

As this is new legislation with large penalty amounts, some practitioners are unaware if their errors and omissions insurance even includes coverage for these returns. This means you can expect to see extremely high fees for preparing these forms.

Can you think of a better way to navigate the messy rules than by playing a game for you to play this Tax Season?

Escape Room 2 – Rules of the Game

IMPORTANT RULES OF THE GAME: This is not an all-inclusive list. The below information is a high-level summary of the more common areas of concern. You should seek specialist advice on your specific circumstances and how the new rules will apply to you.


1) Were you the legal owner (a person/entity registered on title)jointly or otherwise, of a residential property in Canada as of December 31?

If yes, you are still trapped and get to keep playing.

If not, Congrats! You escaped! You can go back to paying rent or sleeping in your vehicle without having to worry about the UHT.


2) Are you a publicly-traded Trust or Corporation that is incorporated under the laws of Canada or a province and listed on a Canadian Stock Exchange?

If yes, Congrats! You escaped! You may continue working on your Securities filings for your upcoming AGM.

If not, you’re still trapped – keep playing.


3) Are you a Registered Charity, Cooperative Housing Corporation, Municipality, Indigenous Governing Body, Government of Canada, Provincial Government, University, Public College, School Authority or Hospital Authority? 

If yes, Congrats! You escaped! You may continue dealing with your annual audit of financial statements.

If not, you’re still trapped – keep playing.


4) Are you an individually wealthy person that does not like to share with others?

For example, you own one or more multiple residential properties – but every single one of them is only in your personal name. No spouse, no corporation, no trust, no partnerships, no friends, no one!             

If yes, Congrats! You escaped! You may go back to swimming alone in your pool of wealth.

If not, you’re still trapped – keep playing.


5) Is the only reason you are on the land title because you are currently the executor or administrator of someone’s estate? 

If yes, Congrats! You escaped! You may continue to grieve and fill out the mountains of government paperwork while everyone else asks you “where’s my inheritance?”

If not, you’re still trapped – keep playing.


6) Are you an individual Canadian Citizen or Permanent Resident of Canada (under the Immigration and Refugee Protection Act) that does not have a business, farm, or rental property owned with another person that could possibly be viewed as a partnership?

If yes, Congrats! You escaped! You may continue to live in your home, paycheque to paycheque, while your cost of payroll deductions and mortgage interest continue to rise and eat away at it.

If not, you’re still trapped – keep playing.


7) Does your business, farm, or rental property co-owned with another person have a residential dwelling on it? 

For example, is your home on the same land title as your farmland or business?

If yes, Congrats! … haha – fooled you! You’re still trapped, and now you get to play the UHT Escape Room Game – Advanced Edition

If not, Congrats! You just made it out – lucky number 7!


Welcome to UHT Escape Room Game – Advanced Edition

In this Edition, everyone must file or face a minimum $5,000 penalty per person on each property.

For example, husband/wife partnership with three residential properties = 2 x 3 x $5,000 = $30,000 penalty if you don’t file!


8) Are you a Specified Canadian Corporation where at least 90% of the ownership and control (direct and indirect) are held by other Specified Canadian Corporations, Canadian Citizens, or Permanent Residents of Canada?      

If yes, you have to file but you won’t have to pay. Don’t forget to file by April 30 no matter what your fiscal year-end date is!

If not, you’re still trapped – keep playing.


9) Are you a Specified Canadian Partnership where every member of the partnership is either a Specified Canadian Corporation, or would not have to file if we ignored the whole “partner of a partnership” thing?     

If yes, Congrats! You have to file but won’t have to pay.

If not, You’re still trapped – keep playing.


10) Are you a Specified Canadian Trust where every beneficiary of the trust is either a Specified Canadian Corporation, or would have escaped from filing if they were the owner themselves?

If yes, Congrats! You have to file but won’t have to pay.

If not, You’re still trapped – keep playing.


11) In this filing year or last year, were you an owner of a property when another co-owner that owned 25% or more died?        

If yes, Congrats! It’s sure a good thing they died! You have to file but won’t have to pay

If not, you’re still trapped – keep playing.


12) Did you die this year or last year (or are you the executor for someone that did and you were not on the land title before they died)

If yes, then UHT definitely puts the FUN in FUNeral! You have to file, but won’t have to pay – don’t forget to play again next year!

If not, you’re still trapped (but alive) – keep playing.


13) Did you buy the property this year and never owned or had your name on it before in the past decade?  

If yes, Congrats on becoming a home-owner, on your first… or second… or third… or… well it doesn’t matter how many homes you have, just as long as you bought it this year. You have to file but don’t have to pay – play again next year!

If not, you’re still trapped – keep playing.


14) Was the property still under construction before April Fools’ Day of the filing year?          

If yes, Congrats – this isn’t an April Fools’ prank. You have to file, but don’t have to pay!

If not, You’re still trapped – keep playing.


15) Was the property finished before April Fools’ Day of the filing year, offered up for sale to the public, but never sold or occupied by an individual as a place of residence or lodging during the year?  

If yes, Congrats! Isn’t it fun making mortgage payments on a home no one wants? You have to file but don’t have to pay.

If not, you’re still trapped – keep playing.


16) Was the property unable to be lived in for at least 120 consecutive days because of renovations undertaken that occurred in a timely fashion?  

If yes, Congrats! As long as you haven’t used this escape door in the last decade, you can now use it. You have to file but don’t have to pay – otherwise, it’s still locked and you keep playing.

If not, you’re still trapped – keep playing.


17) Was the property unable to be lived in for at least 60 consecutive days in the year because of disaster or hazardous conditions caused by circumstances outside the reasonable control of an owner?             

If yes, Congrats! As long as you haven’t used this escape door more than once before for the same disaster or hazardous condition on the property you have to file, but not pay – otherwise, you’re still trapped.

If not, you’re still trapped – keep playing.


18)  Is the property unable to be accessed year-round because there is no maintained public access during the off-season? 

If yes, Congrats! You have to file but don’t have to pay.

If not, you’re still trapped – keep playing.


19) Is the property unsuitable for year-round use as a place of residence?        

If yes, Congrats! Keep following that boiled water advisory and burning everything around you to stay warm. The government is providing you with more blessings: you have to file but don’t have to pay.

If not, you’re still trapped – keep playing.


20) Is the property being used for at least a month consecutively and more than 180 days in the year by you, your spouse or common-law partner, child, or parent who is a Canadian citizen or permanent resident? 

If yes, Congrats! You have to file but don’t have to pay – wasn’t this fun? – Be sure to play again next year!

If not, you’re still trapped – keep playing.


21) Is the property the primary residence for you, your spouse or common-law partner, or for your child attending a designated learning institution? 

If yes, Congrats! You might have to file an election and your spouse must agree. If you need to convince them, tell them that marriage counselling will be cheaper than the failure to file penalty. That should get them to agree to anything. You have to file but don’t have to pay.

If not, you’re still trapped – keep playing.


22) Is the property a vacation property that is used by you or your spouse or common-law partner for at least 28 days in the year and is located in an “eligible area of Canada” (basically rural enough area where they might get dirty trying to find you)

If yes, Congrats on being able to take 4-weeks of vacation every year – you have to file, but won’t have to pay.

If not, you’re still trapped – and likely still at work – keep playing.


23) Speaking of work – is the property being used by you or your spouse or common-law partner for at least a month consecutively and more than 180 days in the year just while you are working in Canada, and the property relates to that purpose?        

If yes, Congrats! You have to file but won’t have to pay.

If not, you’re still trapped – have you considered renting it out?


24) Is the property being rented under a written agreement for at least a month consecutively and more than 180 days in the year to someone paying at least 5% of the property value per year as rent?     

If yes, Congrats! You have to file but won’t have to pay.

If not, you’re still trapped – keep playing – and raise that rent! We wouldn’t want anyone to have affordable housing.


25) Is the property being rented under a written agreement for at least a month consecutively and more than 180 days in the year to an unrelated person?    

If yes, Congrats! But why are you charging them less than fair-value rent? What kind of slum lord are you? Stop making things affordable! You have to file but won’t have to pay.

If not, you are still trapped and now move on to the UHT Escape Room Game – High Stakes Edition


Welcome to UHT Escape Room Game – High Stakes Edition

In this edition of the UHT Escape Room Game, everyone must ante up and Pay to Play!


26) Is the Fair Market Value of the property lower than both the Property Tax Assessed Value and the most recent purchase price of the property?

If yes, you must have a formal appraisal done effective as of a date in the filing year or before the filing deadline. Then you only have to pay 1% of this value multiplied by your percentage of ownership as your UHT.

If not, either get that appraisal done or be happy that your property has increased in value. In the meantime keep playing.


27) Is the Property Tax Assessed Value more than the most recent purchase price?

If yes, Congrats! Not only has your property tax gone up, but so has your UHT – you owe 1% of this value multiplied by your percentage of ownership.

If no, Congrats on your property being worth less than you paid for it – keep playing.


28) Congrats on making it to the end. If you’ve come this far, it means:

  • You own property in Canada;
  • You are not a Canadian Citizen or Permanent Resident;
  • You are alive, or you’ve been dead for more than two years;
  • You don’t rent out the property under a written agreement …or if you do, it is to a relative, and it is way too affordable;
  • If it is a vacation property, you don’t use it for 4-weeks of vacation likely because you don’t get 4-weeks of vacation;
  • You don’t use the property for more than 30 days consecutively, nor more than 180 days in the year for a work-related purpose;
  • You didn’t bother getting a formal appraisal done;
  • You paid more than the current Property Tax Assessed value for the property; and
  • You wonder why they didn’t just say all this in the first place

Congrats – you get to pay 1% of the purchase price when you last acquired the property multiplied by your percentage of ownership.

Do you feel like you won?

Now… as for next year…

… I want to play a game…

CEO | Director CGL Tax Professional Corporation With the Income Tax Act always by his side on his smart-phone, Cory has taken tax-nerd to a whole other level. His background in strategic planning, tax-efficient corporate reorganizations, business management, and financial planning bring a well-rounded approach to assist private corporations and their owners increase their wealth through the strategies that work best for them. An entrepreneur himself, Cory started CGL with the idea that he wanted to help clients adapt to the ever-changing tax and economic environment and increase their wealth through optimizing the use of tax legislation coupled with strategic business planning and financial analysis. His relaxed blue-collar approach in a traditionally white-collar industry can raise a few eyebrows, but in his own words: “People don’t pay me for my looks. My modeling career ended at birth.” More info: https://CGLtax.ca/Litzenberger-Cory.html

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Energy

Government policies diminish Alberta in eyes of investors

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From the Fraser Institute

By Julio Mejía and Tegan Hill

Canada’s economy has stagnated, with a “mild to moderate” recession expected this year. Alberta can help Canada through this economic growth crisis by reaping the benefits of a strong commodity market. But for this to happen, the federal and provincial governments must eliminate damaging policies that make Alberta a less attractive place to invest.

Every year, the Fraser Institute surveys senior executives in the oil and gas industry to determine what jurisdictions in Canada and the United States are attractive—or unattractive—to investment based on policy factors. According to the latest results, red tape and high taxes are dampening the investment climate in the province’s energy sector.

Consider the difference between Alberta and two large U.S. energy jurisdictions—Wyoming and Texas. According to the survey, oil and gas investors are particularly wary of environmental regulations in Alberta with 50 per cent of survey respondents indicating that “stability, consistency and timeliness of environmental regulatory process” scared away investment compared to 14 per cent in Wyoming and only 11 per cent in Texas.

Investors also suggest that the U.S. regulatory environment offers greater certainty and predictability compared to Alberta. For example, 42 per cent of respondents indicated that “uncertainty regarding the administration, interpretation, stability, or enforcement of existing regulations” is a deterrent to investment in Alberta, compared to only 9 per cent in Wyoming and 13 per cent in Texas. Similarly, 43 per cent of respondents indicated that the cost of regulatory compliance was a deterrent to investment in Alberta compared to just 9 per cent for Wyoming and 19 per cent for Texas.

And there’s more—41 per cent of respondents for Alberta indicated that taxation deters investment compared to only 21 per cent for Wyoming and 14 per cent for Texas. Overall, Wyoming was more attractive than Alberta in 14 out of 16 policy factors assessed by the survey and Texas was more attractive in 11 out of 16.

Indeed, Canadian provinces are generally less attractive for oil and gas investment compared to U.S. states. This should come as no surprise—Trudeau government policies have created Canada’s poor investment climate. Consider federal Bill C-69, which imposes complex, uncertain and onerous review requirements on major energy projects. While this bill was declared unconstitutional, uncertainty remains until new legislation is introduced. During the COP28 conference in Dubai last December, the Trudeau government also announced its draft framework to cap oil and gas sector greenhouse gas emissions, adding uncertainty for investors due to the lack of details. These are just a few of the major regulations imposed on the energy industry in recent years.

As a result of these uncertain and onerous regulations, the energy sector has struggled to complete projects and reach markets overseas. Not surprisingly, capital investment in Alberta’s oil and gas sector plummeted from $58.1 billion (in 2014) to $26.0 billion in 2023.

The oil and gas sector is one of the country’s largest industries with a major influence on economic growth. Alberta can play a key role in helping Canada overcome the current economic challenges but the federal and provincial governments must pay attention to investor concerns and establish a more competitive regulatory and fiscal environment to facilitate investment in the province’s energy sector—for the benefit of all Canadians.

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Energy

Proposed legislation seeks to suppress speech about climate change and fossil fuels

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NDP MP Charlie Angus

From the Fraser Institute

By Kenneth P. Green

Canada is a constitutional parliamentary democracy where differences of opinion are to be resolved through elections, which people are persuaded by words and ideas, not threats of violence. Stripping people of the right to express themselves freely will introduce violence into the democratic process, disenfranchising some people and disenchanting others.

It’s rare, in today’s political world, for someone in power to whip off the velvet glove and show the iron fist beneath. It’s a bit gauche for our times. But that’s what happened recently when federal NDP natural resources critic Charlie Angus tabled a member’s bill that would clap anyone who says negative things about the government’s fossil-fuel-phobia into the pokey—and rob them on the way to jail. We’re not talking about a slap on the wrist, but about million-dollar fines and years in jail for simply expressing a positive thought about fossil fuels. So much for the fundamental freedom of expression in Canada.

Angus’ Bill C-372 would fine and jail people for the most innocuous of speech relating to climate change or fossil fuels. Even daring to speak the obvious truths such as “natural gas is less polluting than coal” could land you in jail for one year and cost you $750,000. If you produce fossil fuels and are found guilty of “false promotion,” you’d face two years in jail and a $1.5 million fine.

Enacting such speech restrictions would be destructive of the fabric of Canadian society, and even though this member’s bill (like most) will go nowhere, it should trouble Canadians that we’ve reached a level of political discourse where members of Parliament feel they can blatantly propose stripping Canadians of their freedom of expression, obviously convinced they’ll not pay a price it.

Specifically, Bill-372 and its pernicious idea of speech control would cause harm to two major elements of Canadian civilization—our democracy, which depends on the free exchange of ideas as Canada elects its leaders, and our mixed-market economic system where actors in the market require a free flow of information to make informed decisions that can produce positive economic outcomes and economic growth.

Let’s start with that democracy thing. Canada is a constitutional parliamentary democracy where differences of opinion are to be resolved through elections, which people are persuaded by words and ideas, not threats of violence. Stripping people of the right to express themselves freely will introduce violence into the democratic process, disenfranchising some people and disenchanting others. Canada already has to work hard to promote engagement by the public in the political process. Things like Bill C-372 would not make this easier. A less politically engaged public cedes ever more power to entrenched politicians and political activists, and leaves power in the hands of smaller minorities with extreme enough views who think opposing ideas must be suppressed with force.

Regarding free speech, consider this. Without a robust mixed-market economy, the voluntary exchange which leads to economic activity does not happen. Productivity declines and scarcity, the eternal scourge of humanity, resurges and people suffer. Freedom of expression is central to the operation of market economies. People must be free to share information about the value of things (or lack thereof) for decisions to be made, for prices to manifest, and for markets to function effectively. Without open communication in markets, diversity of goods and services will diminish as some goods and services won’t be promoted or defended while others are freely to advertised.

Bill C-372 should and likely will die an ignominious death in Parliament, but all politicians of all parties should denounce it for what it is—an attempt by government to suppress speech. Unlikely to happen, but one can always hope for sanity to prevail.

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