Federal tax targets homes

Concerns are growing that a new federal tax designed to curb foreign speculation on residential real estate in Canada could take farmers by surprise.

The so-called Underused Housing Tax is part of a package of measures that took effect January 1, including a two-year ban on foreign ownership.

The new UHT could see foreign nationals who are not permanent residents charged 1% of the value of any “underused” residential property, with exemptions for vacation properties. (Vacation properties may be exempt if occupied 28 days a year or more.)

While the average Canadian citizen is excluded from paying the new tax and will be exempt from filing requirements, the same is not true for private companies, partnerships and trusts owned 90% or more by Canadians.

With 56% of farms in BC operating as incorporated entities, hundreds of farmers face an additional nine pages of paperwork as part of the residential declaration process even if no tax is owing.

This concerns St. John McCloskey, an associate with the law firm Clark Wilson in Vancouver, which has been raising the alarm about the potential risks facing property owners who hold real estate through corporate entities, including partnerships and trusts.

Declarations must be made by April 30, with the penalty for those who don’t file starting at $5,000 a year in addition to any tax owing.

Special issues face farmers, who may have two or three residences on a single parcel – homes not just for themselves, but extended family as well as workers.

McCloskey says declarations need to break out the value of each residence, something that may require the assistance of an appraiser as property assessments typically value improvements collective rather than individually.

“How do you value a piece property that has more than one residential property on it for the purposes of the Underused Home Tax?” McCloskey asks. “There’s not a good answer.”

But it’s vital for owners who are not sole proprietors to declare, because the government reserves the right to assess taxes or penalties at any time in the future.

“This means that if a taxpayer incorrectly believes that they do not have to file, their potential liability lasts forever!” a Clark Wilson bulletin notes.