Are you a resident of Canada? Do you believe that the Underused Housing Tax (UHT) rules don’t apply to you? Well, think again! If you are a permanent resident or citizen of Canada, you don’t have to pay the UHT tax and file a UHT return. However, if you’re a trustee of a trust with residential property, you face stricter rules.
Trustees Need to file a UHT Return
If you’re a trustee, there’s no escaping the requirement to file a UHT return*. Failure to do so could result in hefty penalties, with a minimum of $5,000 per year for each trustee. That’s right, each trustee! So, if there are two to three trustees involved, the penalty could easily add up to $10,000-$15,000 per year. And, if the trust only has real estate and no cash to pay the penalty, it could lead to further issues.
*Note, there are exemptions for trustees acting as personal representatives for a deceased individual.
UHT Taxes Owing for Trustees
Trustees who are residents of Canada and have all Canadian resident beneficiaries generally don’t have to pay tax. But, if a beneficiary leaves Canada during the existence of the trust, the trustee could be exposed to paying tax. This could be a headache, especially if the trust only has real estate and doesn’t have the assets to pay the tax.
UHT Tax Planning for Trusts with Non-Resident Beneficiaries
But don’t worry. There are remedies that trustees can use to avoid the UHT. As long as the trust has no non-resident beneficiaries on December 31st of each year, the trustee won’t be liable for the tax. If a beneficiary does leave Canada, the trustee could use a tax-efficient technique to remove the non-resident beneficiary’s interest in the trust.
Conclusion
In conclusion, being a resident of Canada doesn’t necessarily exempt you from the UHT rules. Trustees must be aware of their responsibilities and potential liabilities. They should explore the available remedies to avoid any penalties and tax implications.
If you need consultation on whether you are liable for the UHT, feel free to give us a shout. You can check out our resources on the UHT by clicking here.
