Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 246049
Business Number: N/A
Dear [Client]:
Subject: Underused Housing Tax (UHT) interpretation
Application of the UHT to partnerships
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the UHT to partnerships. […].
All legislative references are to the Underused Housing Tax Act (UHTA) unless otherwise specified.
We understand you would like information on the following scenarios:
Scenario 1 – Two individuals (who are Canadian resident taxpayers) own a residential property that they rent out. For Canadian income tax purposes, each individual reports their rental revenue using Form T776, Statement of Real Estate Rentals.
Scenario 2 – An individual (who is a Canadian resident taxpayer) and their spouse (who is also a Canadian resident taxpayer) own a residential property that they rent out. For Canadian income tax purposes, each spouse reports their rental revenue using Form T776, Statement of Real Estate Rentals.
RULING REQUESTED
You would like to know:
1. In Scenario 1, are the individuals considered to be partners of a partnership for UHT purposes, and are they separately responsible for filing UHT returns for the residential property?
2. In Scenario 2, are the spouses considered to be partners of a partnership for UHT purposes, and are they separately responsible for filing UHT returns for the residential property?
As noted in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, there are circumstances where a ruling will not be issued. For example, the Canada Revenue Agency (CRA) will not issue a ruling when it considers that it would be inappropriate to do so. Circumstances in which the CRA may not issue a ruling include when a request is for a determination of fact, and the circumstances are such that all of the pertinent facts cannot be established. Among other things, this includes issues involving the existence of a partnership or a trust.
However, we are pleased to provide an interpretation of the relevant UHTA provisions which may help you determine whether the individuals described in Scenarios 1 and 2 have to file UHT returns.
INTERPRETATION GIVEN
UHT obligations
Generally, the UHTA sets out two obligations:
1. 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; and
2. 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 the formula described therein.
For each of the two obligations, it is important to determine whether a property is a residential property, whether a person is an owner, and whether the person is an excluded owner or an affected owner. For a additional information on the definition of “owner” and “residential property”, please see UHTN1, Introduction to the Underused Housing Tax.
Excluded owners
A person that is an excluded owner of a residential property on December 31 of a calendar year does not have to file a UHT return or pay the UHT for the residential property for the calendar year. The definition of “excluded owner” is discussed in the following pages.
Affected owners
The CRA uses the term “affected owner” to refer to a person that is an owner of a residential property on December 31 of a calendar year and that is not an excluded owner of the residential property on that date. Under subsection 7(1), a person that is an affected owner of a residential property on December 31 of a calendar year has to file a return for the residential property for the calendar year. Please note that:
* a person that is an affected owner of two or more residential properties on December 31 of a calendar year has to file separate UHT returns for each residential property for the calendar year;
* a person that owns a residential property in more than one capacity must file a separate UHT return for each capacity in which they are an affected owner; and
* if there are two or more affected owners of a residential property on December 31 of a calendar year, each of the affected owners has to file a separate UHT return for the residential property for the calendar year.
Under paragraph 8(a), a person that is required under subsection 7(1) to file a return for a residential property for a calendar year must file it with the Minister of National Revenue on or before April 30 of the following calendar year.
Under subsection 6(3), a person that is an affected owner of a residential property on December 31 of a calendar year has to pay the UHT for the residential property for the calendar year, unless their ownership of the residential property is exempt from the tax for the calendar year.
For each calendar year, a person that is an owner of a residential property in Canada on December 31, that is not an excluded owner, must file an annual return. It is the owner’s responsibility to determine their obligations under the UHTA.
Definition of “excluded owner”
Section 2 provides the definition of “excluded owner”. This definition was amended for the 2023 and subsequent calendar years. Therefore, the following provides the definition of the term for the 2022 calendar year. For the 2023 calendar and subsequent calendar years, please see the Additional Information section at the end of this letter.
2022 calendar year
For simplicity, for the 2022 calendar year, we will focus on paragraphs (b) and (d) of the definition, which are the two paragraphs that most commonly apply to a person that is an individual:
excluded owner of a residential property for a calendar year means a person (other than a prescribed person) that is on December 31 of the calendar year
(b) an individual who is a citizen or permanent resident, except to the extent that the individual is an owner of the residential property in their capacity as a trustee of a trust (other than a personal representative in respect of a deceased individual) or as a partner of a partnership; […]
(d) a person that is an owner of the residential property in their capacity as a trustee of
(i) a mutual fund trust as defined in subsection 248(1) of the Income Tax Act,
(ii) a real estate investment trust as defined in subsection 122.1(1) of that Act, or
(iii) a SIFT trust as defined in subsection 122.1(1) of that Act;
Whether an individual is an owner as a partner of a partnership
You requested a determination of whether two relationships are partnerships for UHT purposes. For purposes of the definition of “excluded owner,” it is a mixed question of fact and law as to whether an individual is an owner of a residential property in their capacity as a partner of a partnership.
The term “partnership” is not defined in the UHTA. For purposes of administering the UHTA in all parts of Canada (other than Quebec), the CRA interprets the term “partnership” to mean the relationship that exists between persons:
* carrying on a business
* in common
* with a view to profit
The above three criteria are fundamental for a relationship to be a valid partnership under general law. If any of the criteria are missing, then the relationship is not a valid partnership. This interpretation is based on the legal definition of partnership that is found in most provincial partnership legislation. Also, it is consistent with how the CRA interprets the term “partnership” for income tax and GST/HST purposes.
The fact that two persons own a property together does not, by itself, create a partnership. The existence of a partnership depends on the true contract and intention of the parties as determined by examining all of the facts of the case. An enquiry must be made into whether the objective documentary evidence and the surrounding facts, including what the parties actually did, are consistent with a subjective intention to carry on business in common with a view to profit. In short, one has to consider the parties’ intentions, their actions or conduct, the facts or circumstances of the arrangement, and any evidence. All of these must be examined when determining whether persons are carrying on a business in common with a view to profit.
Although two or more persons may declare themselves as having a partnership, that does not, by itself, mean that they have created a partnership. A court might decide that the persons have not created a partnership, especially if their actions, the facts and the evidence do not support their stated intention to carry on business in common with a view to profit.
Conversely, where two or more persons declare themselves as not having a partnership, that does not, by itself, mean that they have not created a partnership. A court might decide that they have, in law, created a partnership, especially if their actions, the facts and the evidence support that they are carrying on business in common with a view to profit.
To be clear, nothing in the UHTA deems a relationship to be a partnership. Similarly, nothing in the UHTA deems a person to be a partner of a partnership. If a relationship is a partnership under general law, then it is likely treated as a partnership for UHT purposes. Further, if two persons characterize their relationship as a partnership for Canadian income tax purposes, it may be difficult for them to characterize their relationship as something else for UHT purposes. If two persons characterize their relationship as something other than as a partnership for Canadian income tax purposes (for example, as co-owners of a residential property) then it is possible that the same characterization also applies for UHT purposes.
For more information on partnerships, please refer to Underused Housing Tax Notice UHTN15, Questions and Answers About the Underused Housing Tax, which can be found on the Canada.ca website.
ADDITIONAL INFORMATION
Amendments to the definition of “excluded owner”
Effective for the 2023 and subsequent calendar years, the definition of “excluded owner” has been amended to include more persons as excluded owners.
Under the amended definition of “excluded owner,” the following are examples of individuals who would be excluded owners for UHT purposes, for the 2023 and subsequent calendar years:
* an individual who is a citizen or permanent resident of Canada and who is an owner of a residential property in any of the following capacities:
* as an individual in their own right;
* as a trustee of a trust that is a mutual fund trust, real estate investment trust or SIFT trust for Canadian income tax purposes;
* as a trustee of a trust that is a specified Canadian trust; or
* as a partner of partnership that is a specified Canadian partnership; or
* an individual who is a citizen or permanent resident of Canada and who is an owner of the residential property as a personal representative of a deceased individual
* an individual who is not a citizen or permanent resident of Canada and who is an owner of a residential property in any of the following capacities:
* as a trustee of a trust that is a mutual fund trust, real estate investment trust or SIFT trust for Canadian income tax purposes; or
* as a trustee of a trust that is a specified Canadian trust.
For more information about the amendments to the definition of “excluded owner,” please refer to Underused Housing Tax Notice UHTN1, Introduction to the Underused Housing Tax , which can be found on the Canada.ca website.
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 interpretations 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 interpretations or the additional information provided herein.
CONTACT
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-296-9615.
Sincerely,
Zahra Sylla
Senior Rulings Officer
Real Property - Specialty Tax Unit
Financial Institutions and Real Property Division
GST/HST Rulings Directorate
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