00:04.41

wongga

Welcome investment community this is Garrett Wong your host of the investing to win podcast. Okay, we are going to be doing something a little bit different today. Um I wanted to get an accountant on. Ah, the the podcast today to discuss the underused housing tax or uht as it is ah referred to but you know this is the middle of March. We're about six weeks away from filing tax returns and trying to get an accountant to commit to a last minuteute podcast.

00:37.84

wongga

I thought you know what? I'm just going to do some research speak to my accountant and give you a summary of of something that you can take back I really wanted to sort of get an urgency to get this information out there. So ah, my goal. Ah, is to have this short podcast as a reference that people can use. My hope is that you can spread the word as much as possible. So please if you find this valuable share it to anyone that owns a rental property. So let's talk about my my disclaimer here first. Um I am not. And accountant, not an accountant use this podcast to make you aware of the issues. But then please speak to your accounting professionals see what category you fit into and if this new law affects you now I wanted to do this podcast because I own rental properties and like most people I heard. last year the federal government had passed a law and I thought it was for non-residents and I live here. So it doesn't apply now before I get into anything. Let's talk about why you need to listen to this podcast. So don't touch that dial potential penalties. Monetary penalties if you fall into a certain category. You need to file a form. Regardless, if you owe any tax or not and this form must be submitted by April thirtieth basically four months after the end of the previous calendar year and if you don't file the form.

02:09.71

wongga

It's a $5000 penalty if you're an individual and a ten thousand dollars penalty if you're a corporation and that's per property. So I mean it blows my mind at one time I had owned 43 properties in a corporation so in theory if I didn't file by the deadline. I would owe four hundred and thirty thousand dollars for simply not filing a form I'm going to repeat that again. So you can make note of this $5000 penalty if you're an individual and a ten thousand dollars penalty if you're a corporation regardless if you owe tax or not this is the penalty for not filing the form. Okay, hopefully I've got your attention Let's go back to basics. What is this underused housing tax. Well according to the internet. The underused housing tax is an annual 1% tax on the ownership of vacant or underused housing in Canada that took effect on January First twenty twenty two the tax usually applies to non-resident non-canadian owners in some situations. However. It also applies to canadian owners now. Why did the government do this I'm not going to turn this into ah debates on the podcast or get some government opinions out there. Everybody has their own opinions of it. But at least according to the internet.

03:44.55

wongga

As outlined in the budget of 2021 their stated purpose for introducing a national underused housing tax was to ensure that non-resident owners who are let me start that again. Why did the government do this.

04:05.47

wongga

Sorry this is at 4 ah 6 okay, why did the government do this as outlined in the budget of 2021 the stated purpose for introducing a national underused housing tax was to ensure that non-resident owners. Or using Canada as a place to passively store their wealth in housing pay their fair share. There's an feq online and honestly I've read it and the act I don't know several dozen times and I wasn't really confident in the info. Do I need to file do I don't. Do I need to file. There's an faq online and honestly I read the faqs about several dozen times and honestly I'm not confident in the info. do I need to file or don't i. So I have to pay the tax or don't I so I spoke to my accountant this afternoon and here's a summary of what I know you either fall into 1 of 2 categories, an excluded owner or an affected owner. The government website says if you're an excluded owner of a residential property in Canada you have no obligations or liabilities. Under the underused housing tax act. But who's an excluded owner. There's a ton of definitions online on who is and isn't an excluded owner but I'll read out a few so an excluded owner is an individual who is a canadian citizen or permanent resident.

05:36.58

wongga

Unless included in the list of affected owners any person including an individual who's a canadian citizen or permanent resident that owns a residential property as a trustee of a mutual fund trust and real estate investment trust or specified investment flow through. Trust. For canadian income tax purposes and excluded owner is also a canadian corporation who shares are listed on a canadian stock exchange designated for canadian income tax purposes a registered charity for canadian income tax purposes. Ah, cooperative housing corporation for Canadian Gst Hst purposes or an indigenous governing body or a corporation wholly owned by an indigenous governing body now they have definitions. Of an affected owner which includes but not limited to an individual who is not a canadian citizen or permanent resident an individual who is a canadian citizen or permanent resident Putin and who owns a residential property as a trustee of a trust. Other than as a personal representative of a deceased individual an affected owner includes any person who is a canadian citizen or permanent resident that owns a residential property as a partner of a partnership.

07:03.47

wongga

It could also be a corporation that is incorporated outside of Canada or a canadian corporation who shares are not listed on a canadian stock exchange designated for canadian income tax purposes or lastly, an affected owner includes a canadian corporation. Without share capital confused yet. So we've got excluded owners and an affected owner. An excluded owner is somebody who doesn't have to pay doesn't have to file an affected owner is somebody who has to pay. And somebody who has to file or an affected owner could be somebody who doesn't have to pay but has to file the form anyways, now there are exemptions like any of these laws. Um, and there's a ton of them. Um, and I'm I'm not going to get into them. There's there's just too many and. I think the topic is confusing enough. Um, so I'm you know I'll um I'll post something in the in the show notes. So again encourage you to look at those faqs all right? anybody confused yet don't feel bad. It's convoluted at best.

08:16.38

wongga

After speaking to my accountant today I think he helped me summarize a situation. So I'm going to try to do that with 2 simple questions question number 1 do you own a residential property if the answer is no then you're done you can turn off the podcast. Seriously though, what is a residential property. There's a strict definition on the internet the wording states it is a building with not more than 3 dwelling units with a unit defined as having a kitchen a bath a living area and it must be a private unit so 3 units or less. Is a residential property so therefore a fourplex or larger does not apply to this new law. Okay question number 2 you want to ask yourself am I an excluded owner so this is asking. Are you an affected owner are are you an excluded owner. I think it's obvious if you fall into the affected owner category because you own a property in Canada but aren't you know a canadian citizen permanent resident and then you pay the 1% tax and you file your form. It's the gray areas that are really difficult here. So basically the way it was explained to me. You ask? the question am I canadian citizen or a permanent resident and am I a human now I know that sounds funny and I can almost hear the jokes but it basically means am I a human well a corporation is not a human. Okay.

09:52.00

wongga

Ah corporation then that owns property you don't have to pay the 1 % tax but you still have to file the form so there's another rule here that says if you own the property with someone as a partnership you also have to file the form but you know. Co-ownership is different. So let's say you have 2 spouses or two friends and you co-own a property together. That's not the same type you know same type of thing as a partnership and from I think what they're trying to say here and this probably might affect. You know those joint ventures out there. If you have 2 people that have a partnership agreement in place to own a property you are in the category of an affected owner and you might not have to pay the tax but you certainly and both of you will have to file this form. Okay, so most of our listeners. Are canadians that own rental property and you're unsure if this affects you. So let's summarize these points I just went over. Okay, we're going to summarize these points really quickly to see if you need to file this form number 1 do you own residential property defined with 3 units or less and number 2 are you canadian citizen or permanent resident if so you don't have to file. But if you own your properties in a corporation like I did um you know 43 properties four hundred and thirty thousand dollars of potential penalties then you have to file this form. Ah, or if you own.

11:27.24

wongga

Properties as part of a partnership. You also have to file the form and again those penalties $5000 per property for an individual and $10000 per property for a corp that's as simple as I think I can make it but please don't take my word for it. The purpose of this short podcast. Was to make you aware of the underused housing tax and to get you to speak to your accounting professional and that's it. Hopefully you found this informative and that does it for this podcast. But I'm going to leave you with this last thought I want you to think of someone you know that owns a rental property. And then click that share button and forward this podcast to them. You could literally be saving them tens of thousands of dollars until next time invest to win.