Opinion
Escape Room 2 – The NEW Real Estate Owner Tax Game – High Stakes Edition
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…
From the Fraser Institute
Many Canadians are unhappy about the carbon tax. Proponents argue it’s the cheapest way to reduce greenhouse gas (GHG) emissions, which is true, but the problem for the government is that even as the tax hits the upper limit of what people are willing to pay, emissions haven’t fallen nearly enough to meet the federal target of at least 40 per cent below 2005 levels by 2030. Indeed, since the temporary 2020 COVID-era drop, national GHG emissions have been rising, in part due to rapid population growth.
The carbon tax, however, is only part of the federal GHG plan. In a new study published by the Fraser Institute, I present a detailed discussion of the Trudeau government’s proposed Emission Reduction Plan (ERP), including its economic impacts and the likely GHG reduction effects. The bottom line is that the package as a whole is so harmful to the economy it’s unlikely to be implemented, and it still wouldn’t reach the GHG goal even if it were.
Simply put, the government has failed to provide a detailed economic assessment of its ERP, offering instead only a superficial and flawed rationale that overstates the benefits and waives away the costs. My study presents a comprehensive analysis of the proposed policy package and uses a peer-reviewed macroeconomic model to estimate its economic and environmental effects.
The Emissions Reduction Plan can be broken down into three components: the carbon tax, the Clean Fuels Regulation (CFR) and the regulatory measures. The latter category includes a long list including the electric vehicle mandate, carbon capture system tax credits, restrictions on fertilizer use in agriculture, methane reduction targets and an overall emissions cap in the oil and gas industry, new emission limits for the electricity sector, new building and motor vehicle energy efficiency mandates and many other such instruments. The regulatory measures tend to have high upfront costs and limited short-term effects so they carry relatively high marginal costs of emission reductions.
The cheapest part of the package is the carbon tax. I estimate it will get 2030 emissions down by about 18 per cent compared to where they otherwise would be, returning them approximately to 2020 levels. The CFR brings them down a further 6 per cent relative to their base case levels and the regulatory measures bring them down another 2.5 per cent, for a cumulative reduction of 26.5 per cent below the base case 2030 level, which is just under 60 per cent of the way to the government’s target.
However, the costs of the various components are not the same.
The carbon tax reduces emissions at an initial average cost of about $290 per tonne, falling to just under $230 per tonne by 2030. This is on par with the federal government’s estimate of the social costs of GHG emissions, which rise from about $250 to $290 per tonne over the present decade. While I argue that these social cost estimates are exaggerated, even if we take them at face value, they imply that while the carbon tax policy passes a cost-benefit test the rest of the ERP does not because the per-tonne abatement costs are much higher. The CFR roughly doubles the cost per tonne of GHG reductions; adding in the regulatory measures approximately triples them.
The economic impacts are easiest to understand by translating these costs into per-worker terms. I estimate that the annual cost per worker of the carbon-pricing system net of rebates, accounting for indirect effects such as higher consumer costs and lower real wages, works out to $1,302 as of 2030. Adding in the government’s Clean Fuels Regulations more than doubles that to $3,550 and adding in the other regulatory measures increases it further to $6,700.
The policy package also reduces total employment. The carbon tax results in an estimated 57,000 fewer jobs as of 2030, the Clean Fuels Regulation increases job losses to 94,000 and the regulatory measures increases losses to 164,000 jobs. Claims by the federal government that the ERP presents new opportunities for jobs and employment in Canada are unsupported by proper analysis.
The regional impacts vary. While the energy-producing provinces (especially Alberta, Saskatchewan and New Brunswick) fare poorly, Ontario ends up bearing the largest relative costs. Ontario is a large energy user, and the CFR and other regulatory measures have strongly negative impacts on Ontario’s manufacturing base and consumer wellbeing.
Canada’s stagnant income and output levels are matters of serious policy concern. The Trudeau government has signalled it wants to fix this, but its climate plan will make the situation worse. Unfortunately, rather than seeking a proper mandate for the ERP by giving the public an honest account of the costs, the government has instead offered vague and unsupported claims that the decarbonization agenda will benefit the economy. This is untrue. And as the real costs become more and more apparent, I think it unlikely Canadians will tolerate the plan’s continued implementation.
Author:
From the Fraser Institute
By Matthew Lau
To understand Ottawa’s negative impact on Alberta’s economy and living standards, juxtapose two recent pieces of data.
First, in July the Trudeau government made three separate “economic development” spending announcements in Alberta, totalling more than $80 million and affecting 37 different projects related to the “green economy,” clean technology and agriculture. And second, as noted in a new essay by Fraser Institute senior fellow Kenneth Green, inflation-adjusted business investment (excluding residential structures) in Canada’s extraction sector (mining, quarrying, oil and gas) fell 51.2 per cent from 2014 to 2022.
The productivity gains that raise living standards and improve economic conditions rely on business investment. But business investment in Canada has declined over the past decade and total economic growth per person (inflation-adjusted) from Q3-2015 through to Q1-2024 has been less than 1 per cent versus robust growth of nearly 16 per cent in the United States over the same period.
For Canada’s extraction sector, as Green documents, federal policies—new fuel regulations, extended review processes on major infrastructure projects, an effective ban on oil shipments on British Columbia’s northern coast, a hard greenhouse gas emissions cap targeting oil and gas, and other regulatory initiatives—are largely to blame for the massive decline in investment.
Meanwhile, as Ottawa impedes private investment, its latest bundle of economic development announcements underscores its strategy to have government take the lead in allocating economic resources, whether for infrastructure and public institutions or for corporate welfare to private companies.
Consider these federally-subsidized projects.
A gas cloud imaging company received $4.1 million from taxpayers to expand marketing, operations and product development. The Battery Metals Association of Canada received $850,000 to “support growth of the battery metals sector in Western Canada by enhancing collaboration and education stakeholders.” A food manufacturer in Lethbridge received $5.2 million to increase production of plant-based protein products. Ermineskin Cree Nation received nearly $400,000 for a feasibility study for a new solar farm. The Town of Coronation received almost $900,000 to renovate and retrofit two buildings into a business incubator. The Petroleum Technology Alliance Canada received $400,000 for marketing and other support to help boost clean technology product exports. And so on.
When the Trudeau government announced all this corporate welfare and spending, it naturally claimed it create economic growth and good jobs. But corporate welfare doesn’t create growth and good jobs, it only directs resources (including labour) to subsidized sectors and businesses and away from sectors and businesses that must be more heavily taxed to support the subsidies. The effect of government initiatives that reduce private investment and replace it with government spending is a net economic loss.
As 20th-century business and economics journalist Henry Hazlitt put it, the case for government directing investment (instead of the private sector) relies on politicians and bureaucrats—who did not earn the money and to whom the money does not belong—investing that money wisely and with almost perfect foresight. Of course, that’s preposterous.
Alas, this replacement of private-sector investment with public spending is happening not only in Alberta but across Canada today due to the Trudeau government’s fiscal policies. Lower productivity and lower living standards, the data show, are the unhappy results.
Author:
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