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Navigating HST Across Provinces: A Guide for Alberta Businesses

February 27, 2024
Post by Matthew Kozlowski, CPA

In our experience as an accounting firm based in Alberta, we have noticed that many of our clients are not fully aware that they can claim the provincial portion of the Harmonized Sales Tax (HST) as an Input Tax Credit (ITC) when HST is paid on goods.

This lack of awareness can lead to missed opportunities, especially when dealing with transactions involving provinces where HST is applicable. Understanding these nuances is crucial for businesses in Alberta to ensure that all GST/HST Input Tax Credits are claimed appropriately.

It is important note that HST and Provincial Sales Tax (PST) are not the same. The HST merges the federal Goods and Services Tax (GST) with PST, applied in provinces like Ontario and Nova Scotia, and administered federally by the Canada Revenue Agency (CRA). Conversely, the PST, separate from GST and known as QST in Quebec, is levied in provinces like British Columbia and Saskatchewan, with each province setting its rates and handling its administration. The primary difference lies in HST’s amalgamation and federal oversight, contrasting with PST’s independent provincial management.

  1. Provinces with HST and Their Percentages

Firstly, it’s important to know which provinces charge HST and their respective rates. As of now, the following provinces have HST:

Province HST Rate
New Brunswick 15%
Newfoundland and Labrador 15%
Nova Scotia 15%
Ontario 13%
Prince Edward Island 15%

 

  1. HST Implications for Alberta Businesses

For businesses in Alberta (which typically have GST at 5%) the tax implications can be complex, especially when transactions involve provinces that do.

A common scenario to consider is when goods are purchased from an HST province (New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, or Prince Edward Island) and delivered to Alberta. This situation should prompt a review of the source documentation to determine if HST (and not just GST) was paid on the invoice.

What type of sales tax (GST or HST) is charged is determined generally by the place of supply. The place of supply is determined on where legal delivery of the goods occur. When legal delivery of the good occurs is typically outlined in the terms of the agreement for the sale of goods.

Example 1 (HST can be claimed):

A manufacturer in Ontario sells a good to a corporation in Alberta. Legal delivery of the good occurs in Ontario at the manufacturer’s premises as per the terms of the sales agreement. The corporation regularly purchases goods from the manufacturer and establishes freight terms with a common carrier for the regular transportation of goods from the manufacturer’s premises to Alberta whenever required. The corporation instructs the manufacturer to contact the carrier directly to advise the carrier whenever goods are ready for pick-up. The carrier invoices the corporation for any transportation service that is provided pursuant to their arrangement.

The good is delivered to the purchaser in Ontario. Therefore, the supply is made in Ontario and is subject to HST at a rate of 13% all of which can be claimed as an ITC.

Example 2 (GST only can be claimed):

A corporation in Ontario sells a good to a purchaser in Alberta. Based on the terms of delivery in the agreement for the supply of the good, legal delivery of the good to the purchaser occurs in Alberta.

Because legal delivery of the good to the purchaser occurs in Alberta, the supply is made in Alberta and is subject to GST at a rate of 5%.

*Note – the above place of supply rules do NOT apply to specified motor vehicles. Specified motor vehicles are generally all motor vehicles except racing cars and any prescribed motor vehicles.

For specified motor vehicles, the place of supply is determined by where the vehicle was registered (other than on a temporary basis).

  1. Claiming HST as an Input Tax Credit (ITC)

If HST is paid by a registrant business or individual in Alberta and it was incurred for commercial goods used in a commercial sense, then the HST (including the provincial portion) can be claimed as an Input Tax Credit (ITC). This is a significant aspect for businesses as it allows for the recovery of HST paid on business-related purchases.

Key Takeaways

-Always review source documentation for transactions involving provinces with HST to determine tax implications.

-Generally, where the good is legally delivered is the place of supply and that is the relevant GST/HST tax rate that should be used.

-If you are a GST/HST registrant and have paid HST on a business-related item you can claim the full amount of HST (including the provincial portion) on your GST return.

For any further questions or clarifications, please contact our office at 780-532-4641 or e-mail office@fulcrumgroup.ca

2023 Trust Reporting Requirements (T3 Return)

February 23, 2024

 

 The federal government recently released new federal trust reporting requirements that will be effective for taxation years ending after December 30, 2023 (which means that taxation years ending December 31, 2023, will be affected). These changes will have an impact on many trusts, including those previously exempt from reporting obligations.

Expanded Reporting for Trusts

The new rules significantly broaden the scope of trusts required to file an annual Trust Income Tax and Information Return (“T3”). This includes most personal trusts resident in Canada, even those without income tax liability or distributions during the year. Notably, bare trusts, often used in joint ventures, real estate holdings, or probate planning, may now also be subject to these new reporting requirements.

What Could Constitute a Trust?

  • Co-Signing or Being on a Property Title: If you have co-signed a loan or are on a property title to help someone (like a child) acquire a property, with the understanding that the benefit, profits, or control are theirs.
  • Estate Planning: Holding, controlling, or being named on assets that are intended to be passed on or utilized by others in the future.
  • Asset Management: Managing assets, be it money, bank accounts, property, or investments, with clear instructions (usually in writing) about who benefits or how the assets should be managed or distributed (this can include bank accounts held in more than one person’s name with a balance of $50,000 or more).

Trusts created for holding personal-use assets for estate planning or asset protection, such as those above, which may have previously qualified for the filing exception, will no longer be exempt under the new rules.

 

New Obligations and Requirements

Expanded T3 Return Filing Obligations

  • Previously, certain trusts, especially those with no activity or income tax payable (like those holding a vacation property), were exempt from filing a T3.  This exemption will no longer apply to most of these trusts starting in 2023.

For supporting information from Canada Revenue Agency, click the link below
CRA Media Release

 

Expanded T3 Return Reporting Requirements – Beneficial Ownership Information of a Trust:

  • Express trusts, non-resident trusts and bare trust arrangements may now be required to file a T3 return and must also report additional detailed information.
  • The new Schedule 15 in the T3 is now required to be completed and filed with all T3’s to report more the additional disclosures.
  • Schedule 15 requires the name, address, date of birth, jurisdiction of residence, and taxpayer identification number (SIN, BN, ITN) for each settlor, trustee, beneficiary, and any person with influence over trustee decisions.

To download the Schedule 15 form, click on the link below
Schedule 15

 

Exemptions from the expanded requirements

The following trusts are exempt from filing a T3 return:
  • Trusts that hold assets with a maximum fair market value (“FMV”) of $50,000 throughout the year (these assets are limited to deposits, government debt obligations, and listed securities)
  • Trusts that have been in existence for less than three months
  • Qualified disability trusts
  • Trusts governed by registered plans (including registered retirement savings plans and tax-free savings accounts)
  • Mutual fund trusts, segregated funds, and master trusts
  • Employee life and health trusts
  • Cemetery care trusts and trusts governed by eligible funeral arrangements
  • Lawyers’ general trust accounts
  • Graduated rate estates
  • Trusts, all the units of which are listed on a designated stock exchange
  • Trusts that qualify as non-profit organizations or registered charities
  • Certain government-funded trusts

Additionally, information subject to solicitor-client privilege is exempt from these new reporting requirements.

 Filing Deadline

  • The T3 return along with Schedule 15 must be filed within 90 days of the end of its fiscal year. Most of these trusts have a December 31, 2023, fiscal year-end and will be due by March 30, 2024

 

Non-Compliance Penalties

  • The penalty for non-compliance  is the greater of $2,500 or 5% of the trust’s maximum fair market value during the year. 
  • These are in addition to existing penalties for failing to file a T3 return, which also carries a maximum penalty of $2,500, meaning trusts could incur multiple penalties.
  • Standard late-filing penalties may also apply.

 

Conclusion

The new trust reporting rules mark a significant shift in the transparency and disclosure requirements for trusts in Canada. It is essential for trustees and relevant parties to understand these changes to ensure timely compliance. Our team at Fulcrum Group is here to assist you in navigating these new requirements so please feel free to reach out for further clarification or any assistance you may need in filing your T3s.

Cryptocurrency: Navigating the Complexities and Tax Implications in Canada

February 20, 2024
Post by Ian Penner

Cryptocurrencies have taken the financial world by storm, offering new and exciting opportunities for investors and businesses. However, as with any financial asset, it’s essential to understand the tax implications involved, especially in the ever-evolving landscape of Canadian tax law. In this blog post, we’ll explore the key considerations and guidelines for handling cryptocurrencies from a tax perspective in Canada.

Understanding the Basics:

Transactions with Cryptocurrencies like Bitcoin, Ethereum, and others may result in either business income (loss) or capital gain (loss)for tax purposes in Canada. As there is nuance in determining how crypto transactions should be recorded it is important to understand the basics before entering into these transactions.

Business Indicators:

Per CRA,  “The following factors may indicate that you are carrying on a business:

  • Frequency of transactions – you have a history of extensive buying and selling of crypto-assets
  • Period of ownership – you hold your crypto-assets for a short period of time, and you turn them over quickly
  • Knowledge of crypto-asset markets – you have knowledge of, or experience in, crypto-asset markets
  • Time spent – you spend a substantial part of your time studying crypto-asset markets
  • Financing – you finance your crypto-asset purchases by some form of debt
  • Advertising – you advertise that you are willing to buy crypto-assets”[1]

When the factors indicate that you are carrying on a business the full amount of the gain on the disposition of crypto will be included as business revenue. You will be able to deduce and expenses related to the business against this revenue to reduce your taxable income.

Buying and Selling Cryptocurrencies as Investment:

When you purchase or sell cryptocurrencies, it triggers a capital gain or loss. The capital gain or loss is calculated based on the difference between the purchase price (adjusted cost base) and the selling price. This applies when there is no indication of business income. The advantage is only ½ of the capital gain is included in income for tax purposes.

Cryptocurrency Mining:

For individuals or businesses involved in cryptocurrency mining activities, the mined coins are considered income at their fair market value at the time they are acquired. Subsequently, any future selling of these coins would result in capital gains or losses.

Cryptocurrency as Payment:

If you accept cryptocurrencies as payment for goods or services, the fair market value of the cryptocurrency received needs to be reported as income for tax purposes.

Tax Reporting Obligations:

Annual Reporting:

Canadians are required to report their cryptocurrency transactions on their annual tax returns. This includes detailing each transaction, the date of acquisition or disposition, the amount involved, and any associated costs.

Keeping Records:

It’s crucial to keep meticulous records of all cryptocurrency transactions, including receipts, invoices, and details of wallet addresses. This information will be invaluable when reporting to the Canada Revenue Agency (CRA).

Foreign Exchange Gains and Losses:

Cryptocurrency transactions involving foreign exchanges may also result in foreign exchange gains or losses, which should be reported for tax purposes.

Tax Planning Strategies:

Capital Losses and Offsetting Gains:

Consider strategic planning to offset capital gains from cryptocurrency transactions with capital losses from other investments, helping to minimize overall tax liability.

Use of Tax-Advantaged Accounts:

Explore the possibility of holding cryptocurrencies within tax-advantaged accounts like Tax-Free Savings Accounts (TFSAs) or Registered Retirement Savings Plans (RRSPs) to defer taxes.

Conclusion:

As cryptocurrencies continue to gain prominence, understanding the tax implications becomes increasingly important. It’s recommended to consult with a qualified tax professional to ensure compliance with Canadian tax laws and to develop effective tax planning strategies. Stay informed, keep accurate records, and navigate the complexities of cryptocurrency taxation with confidence.

Remember, this blog post provides general information and should not be considered as professional advice tailored to your specific situation. Always consult with a tax professional for personalized guidance.

 

[1] https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/digital-currency/cryptocurrency-guide.html

Government Proposes Changes to Underused Housing Tax (UHT) for 2023

January 4, 2024

In Budget 2021, the Canadian government introduced the Underused Housing Tax (UHT), a 1% annual tax on the value of non-resident, non-Canadian-owned vacant or underused residential real estate. In response to feedback on the onerous filing, the government is proposing significant changes to streamline compliance. These changes have not yet been passed with federal legislation but are expected to be passed and enacted in the coming months.

 

One notable proposal is the elimination of filing requirements for certain owners. “Specified Canadian corporations,” partners of “specified Canadian partnerships,” and trustees of “specified Canadian trusts” are slated to become “excluded owners,” relieving them of UHT reporting obligations. The government aims to expand these definitions to include a broader range of Canadian ownership structures, reducing the compliance burden for eligible entities starting from the 2023 calendar year. 

 

This means that most Canadians should not have to file a UHT return in 2023.  

 

To further ease the transition, the government is also suggesting a reduction in minimum failure-to-file penalties. The minimum penalties for individuals and corporations for late filing UHT returns are proposed to decrease from $5,000 to $1,000 and from $10,000 to $2,000, respectively, beginning in 2022. 

 

The requirement to file UHT returns for 2022 under the original legislation will continue and the deadline has been extended to April 30, 2024. If you have not filed your UHT returns yet or are unsure if you have a filing obligation, please contact Fulcrum Group.  

 

*The information contained in this post reflects the standards and rules applicable at the date posted and may or may not be relevant at future dates

Important Update on UHT Filing Requirements for Co-Owned Residential Rental Properties

October 11, 2023

The Canada Revenue Agency (CRA) recently released technical interpretation UHTN-15, which discusses co-ownership of residential rental properties and its potential impact on the filing requirements for the Underused Housing Tax (UHT).

In accordance with UHTN-15, the term “partnership” for UHT purposes is not explicitly defined in the Underused Housing Tax Act (UHTA). Instead, the CRA relies on the definition provided by provincial partnership legislation, which is consistent with the legal understanding of a valid partnership.

The key criteria for a relationship to be considered a partnership for UHT purposes are:

  1. Carrying on a Business: The co-owners must be engaged in the activity of renting out the residential property, treating it as a business venture rather than a passive investment. ( A key differentiation can be whether the property is self-managed [business] or a property management company is engaged [passive investment])
  2. In Common: The co-owners must share ownership and responsibilities related to the property, indicating a joint interest and collaborative effort in its management.
  3. With a View to Profit: The primary objective of the co-ownership should be the pursuit of profit, aligning with the basic principles of a business partnership.

These three criteria closely mirror the fundamental elements required for a valid partnership under provincial partnership legislation. If any of these criteria are not met, the relationship would not qualify as a valid partnership for UHT purposes.

Given the self-assessment nature of Canada’s tax system, it is crucial for co-owners to determine whether their residential rental property arrangement meets these criteria. Should the co-ownership structure align with the conditions outlined in UHTN-15, filing a UHT return as a partnership may be necessary. The deadline to file is Oct 31, 2023, for 2022 returns and will be April 30 for future years. The late filing penalty is $5,000 per form.

To ensure compliance and explore any potential implications for your specific situation, contact our office and/or schedule a meeting at your earliest convenience. This will allow us to discuss the particulars of your residential property holdings and formulate a tailored strategy to address any UHT filing requirements that may arise.

Shareholder’s Loan – What is it and How Does it Work?

September 14, 2023

As a shareholder of your corporation, your shareholder’s loan is an important account that indicates how much the company owes to you or how much you owe to the company. It is important to know how the shareholder’s loan works and how it can affect your personal taxes. You should ensure that you are aware of what transactions impact your shareholder’s loan balance and where the balance is at the end of every year.

How it Works

Cash Withdrawal

When an owner takes cash out of the company, it is considered to be an owner withdrawal and is money that is owed back to the company if not repaid.  If, as a shareholder, you use company funds to make a personal purchase,  the purchase price is considered a withdrawal of company funds for personal use and is also owed back to the company.

Cash Contribution

Sometimes the company will not have enough cash to operate.  If this is the case, the shareholder may lend money to the company. These amounts are owed back to the shareholder and can be repaid at any time.  There are no personal tax consequences to repaying them. The contributions can also offset any personal withdrawals of company funds.  If, as a shareholder, you were to contribute or sell equipment to the company without receiving any reimbursement directly, it would also be considered a contribution.

Shareholder Balance

If at the end of your fiscal year, your shareholder’s loan is overdrawn, the overdrawn amount must be repaid by the end of the following year.  If you intend to repay the overdrawn amount by the end of the following year, no additional steps may be necessary.  Alternatively, if you choose not to or are unable to repay the overdrawn amount, a dividend can be issued to clear up the shareholder’s loan balance. These dividends are reported on a T5 slip and are included as taxable income on your personal tax return in the year they are declared.

If the overdrawn shareholder’s loan is not repaid by the end of the following year and dividends are not recorded, CRA could consider this to be personal income and require an adjustment to your personal tax return for the year in which the amount became overdrawn. If, in later years, you repay any portion of the overdrawn amount, you can record a deduction equal to the amount repaid to offset your income in that year.  This scenario can often result in significant tax in the year of income inclusion and include additional interest and penalties, so it is best to avoid this scenario if possible.

Something to be aware of is that you cannot repay an overdrawn shareholder’s loan at your year-end date and then take the money back out the following day. CRA will consider this to not be repaid and taxation can still occur.  For example, if you have a December 31st year-end and repay the overdrawn amount on December 31st but then take it back out again on January 1st, CRA will likely consider it to not have been repaid.

If you feel like you may be running into a shareholder’s loan issue, or would like to learn more about how it works, please contact us to discuss how it may impact you.

Tax-Free First Home Savings Account (FHSA)

April 13, 2023

By Samantha Sandy

The government introduced a new Tax-Free First Home Savings Account (FHSA) effective April 1, 2023, that allows you to save up to $8,000 tax-free annually towards the purchase of your first home with a lifetime contribution limit of $40,000.  Contributions made to an FHSA may be deducted on your personal tax return similar to RRSPs. Although the federal government has made this announcement effective April 1st, most banks have announced that the accounts will not be available to open until the summer of 2023 as they work through the complexities surrounding these accounts and the reporting guidelines of government agencies.

Who is eligible for an FHSA

To be a qualifying individual, you must meet all of the following requirements:

  • 18 years of age or older
  • A resident of Canada
  • A first-time home buyer

For purposes of opening an FHSA, you are considered to be a first-time home buyer if, at any time in the calendar year before the account is opened or at any time in the preceding four calendar years, you did not live in a qualifying home as your principal place of residence that either you owned or jointly owned or your spouse or common-law partner (at the time the account is opened) owned or jointly owned.

How to Open an FHSA

FHSA’s can only be opened through issuers such as banks, credit unions, or trusts, or insurance companies. You can have more than one FHSA at a time, but you must ensure that the total contributions for the calendar year do not exceed your maximum contribution room.

To open an FHSA, simply contact your issuer. Please ensure you have the following information so the can register your FHSA:

  • Your social insurance number
  • Your date of birth
  • Any supporting documents your issuer may need to ensure you are a qualifying individual for this account.

If incorrect information is provided, and you are deemed to not be eligible for the FHSA, it may be revoked from the date the account was opened, and the following will apply:

  • Contributions would not be tax-free and any deduction claimed for them would be disallowed in the years it was claimed
  • Amounts that were transferred from RRSPs would be treated as a withdrawal and reported as income in the year it was transferred.
  • Income earned within the FHSA would not be tax-free and must be reported in the years it was earned.

Annual Maximum Contribution Limits and Tax Deductions

FHSAs have an annual contribution limit of $8,000, with a maximum lifetime contribution limit of $40,000. Any and all contributions to the account will reduce contribution room. This includes transfers from RRSPs. If you do not contribute the full $8,000, the remaining contribution room will be carried forward to the next year. This amount will not continue past one year though. For example, if you opened the account in 2023, but did not make contributions until 2028, your amount for 2028 would only be the unused amount from 2027 and 2028, making your total contribution room for 2028 $16,000.

Unlike RRSPs, there is no ability for tax planning in the first 60 days of the year.  Contributions are only deductible in the calendar year in which they are made.

You are not permitted to participate directly in your spouse’s or common-law partner’s FHSA. If the FHSA is in their name, you cannot transfer your RRSPs or claim the FHSA tax deductions that correspond with their account.

Overcontributions to FHSAs

If you contribute too more than the maximum amount, tax will be assessed on the excess amount at a rate of 1% per month on the highest excess FHSA amount that month. This will continue until the excess amount is eliminated by withdrawing it or sufficient additional room being available at the beginning of the next calendar year.

If the excess amount is still in the account as of January 1st of the following year, your contribution room for that year will be reduced by the excess amount. For example, if you over contribute by $2,000, your contribution room for the following year will be $6,000 ($8,000-$2,000).

If you would like to remove the excess amount immediately, you may:

  • Make a withdrawal
  • Make a direct transfer from your FHSAs to your RRSPs or RRIFs (if you have sufficient contribution room there)

Please discuss with your issuer to find what is best for your situation.

Making qualifying withdrawals from your FHSAs

If you meet the qualifying withdrawal conditions, you can withdraw all of the funds from your FHSAs tax-free. You can do this either in a single withdrawal or a series of withdrawals.

 For a withdrawal to qualify, it must meet all of the following conditions:

  • Form RC725: Request to Make a Qualifying Withdrawal from your FHSA must be completed and given to your FHSA issuer.
  • You must have a written agreement to buy or build a qualifying home with the acquisition or construction completion date of the qualifying home before October 1 of the year following the date of the withdrawal
  • You must not have acquired the qualifying home more than 30 days before making the withdrawal
  • You must be a resident of Canada from the time that you make your first qualifying withdrawal from one of your FHSAs until the earlier of the acquisition of the qualifying home or the date of your death
  • You must occupy or intend to occupy the qualifying home as your principal place of residence for at least one year after buying or building it

When to close an FHSA

There is a maximum participation period that starts when you open your first FHSA and ends December 31 of the year in which the earliest occurs:

  • The 15th anniversary of opening your first FHSA
  • You turn 71 years old
  • The year following your first qualifying withdrawal

In order to avoid any issues, ensure your account is closed before the applicable period ends.

For more details, please see https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account.html

 

Sources

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account.html

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account/definitions.html

 

Underused Housing Tax (UHT)

February 24, 2023
By Ian Penner & Sarah Penner

What is the UHT?

As part of the 2022 federal budget, the government passed the new Underused Housing Tax Act. This legislation creates a new 1% tax on the value of ‘underused housing’. While the underused housing tax (UHT) is intended to target foreign ownership, many Canadians through partnerships, trusts and small businesses will be required to file an annual return (Form UHT-2900) even though there are many exemptions from the tax itself. If you own residential property other than your principal residence, it will be essential to review any filing obligations.

Types of Property

Residential property of is defined as one of the following:

  • A detached house
  • Duplex (2 residential dwellings under one title)
  • Triplex (3 residential dwellings under one title)
  • Semi-detached house
  • Townhouse or rowhouse unit
  • Residential condominium

Unaffected property includes properties with 4 or more dwellings such as 4-plexes and apartments.

Types of owners

There are two types of owners in regard to the UHT.  Type of ownership is based on December 31 of the calendar year.

‘Excluded Owner’

These are owners that DO NOT have to file the UHT-2900 and include:

  • an individual who is a Canadian citizen or permanent resident (except a trustee of a trust or a partner of a partnership)
  • a trustee of a mutual fund trust, a real estate investment trust (REIT) or a specified investment flow-through trust (SIFT)
  • a corporation whose shares are listed on a Canadian stock exchange
  • a registered charity
  • a cooperative housing corporation, hospital authority, municipality, para-municipal organization, public college, school authority, or university
  • an Indigenous governing body or a corporation wholly owned by an Indigenous governing body

‘Affected Owner’  

These are owners that MUST FILE the UHT-2900 regardless of tax obligation and include:

  • an individual who is not a Canadian citizen or a permanent resident
  • an individual who is a Canadian citizen or permanent resident who owns a residential property as a trustee of a trust (other than as a personal representative of a deceased individual)
  • any person, including an individual who is a Canadian citizen or permanent resident, that owns a residential property as a partner of a partnership (this includes those that have filed a rental schedule – T776 on their personal return as a partner with a spouse or other individual)***
  • a corporation incorporated outside Canada
  • a Canadian corporation whose shares are not listed on a Canadian stock exchange
  • a Canadian corporation without share capital

All Affected Owners MUST file a separate return for EACH property even if they are exempt from the tax. Similarly, EACH member of a partnership MUST file a separate return for EACH property.

***Rental properties owned jointly with spouse (common-law partner). There is a possible obligation to file returns for personally owned property including property owned jointly with your spouse. Depending on circumstances, this arrangement can be considered a partnership. We encourage you to consult with your Fulcrum Group advisor to determine your filing obligations.

****Property held in trust (cosigning and estate planning). There is an obligation to file a return when you are listed as the legal owner of a property but do not have beneficial ownership and are then deemed to own the property in trust. Below are two common examples of this but other do exist. Please consult Fulcrum staff if you might be a trust owner.

Scenario 1

A child is unable to qualify for a mortgage and a parent cosigned. Banks requires cosigners to be on title so now the parent is listed in fact as a legal owner. The child is the beneficial owner. The parent owns the property in trust and is deemed to be a trustee. The parent must file a UHT-2900 return (but will generally be exempt from tax). The child does not have a filing obligation for their personal residence.

Scenario 2

An aging parent is now the sole owner of their home. In order to simplify the estate a child/children are added to the title of the home. This is often done so the property can avoid probate. The child/children are now legal owners of the property but beneficial ownership is still solely that of the parent. The child/children have become trustees and must file a UHT-2900 return (but will generally be exempt from tax). The parent does not have a filing obligation for their personal residence.

Exemptions

Affected owners have several exemptions that will remove any tax obligations. However, even where exemptions apply, the affected owner will still be required to file the UHT-2900 return.  The exemptions are classified in 3 parts as defined on Form UHT-2900.

Part 4 Exemption

Exemption for primary place of residence

The property must be the primary place of residence for any of the following:

  • You
  • Your spouse or common-law partner
  • Your child who is pursuing authorized study at a designated learning institution
  • Your spouse’s child who is pursuing authorized study at a designated learning institution

Part 5 Exemptions

Exemption for qualifying occupancy

The property must have one or more qualifying occupancy periods totaling at least 180 days where each day is part of increments of at least 1 month. (Short term rentals do not qualify for this exemption).

You will need to provide the total number of days on UHT – 2900 if claiming one of the following exemptions.

  • An arm’s length individual was given continuous occupancy of the dwelling under a written agreement
  • A non-arm’s length individual was given continuous occupancy of the dwelling under a written agreement for consideration that is not below fair rent[i]*
  • You or your spouse or common-law partner have continuous occupancy for the purpose of pursuing authorized work under a Canadian work permit
  • Your spouse, common-law partner, parent, or child, who is a Canadian citizen or permanent resident of Canada, has continuous occupancy

For individual owners who are neither Canadian citizens nor permanent residents, if between you and your spouse you own multiple residential properties, your ownership may not qualify for Part 4 or Part 5 exemptions. You and your spouse must each file an election with the CRA to designate only one property (the same property) for the purposes of the Part 4 and Part 5 exemptions.

Part 6 Exemptions

Other exemptions

  • You own the property as a partner of a specified Canadian partnership[ii].
  • You own the property as a trustee of a specified Canadian trust[iii].
  • You own the property and are a specified Canadian corporation[iv].
  • The property is not suitable for year-round use.
  • The property is seasonally inaccessible.
  • The property was uninhabitable for a minimum of 60 consecutive days due to a disaster or hazardous conditions beyond your control.
  • The property was uninhabitable for a minimum of 120 days due to renovations. (This exemption cannot be used if it was used in the previous 9 years)
  • You became the owner of the property in the calendar year and you had not been an owner of that property in the previous 9 years.
  • The owner died during either the current or in the previous calendar year.
  • You are the personal representative of a decreased individual who was an owner of the residential property during the calendar year or the previous calendar year
  • You were an owner of the residential property with an individual who was also an owner of the residential property on the day the individual died in the calendar year or the previous calendar year, and the deceased individual’s percentage of ownership was at least 25%.
  • Construction of the residential property is not substantially completed before April of the calendar year.
  • Construction of the property is substantially completed between January and March of the calendar year, the property is listed for public sale, and the property has not been occupied.
  • The property is located in an eligible area and is used as a place of residence by you or our spouse (common-law partner) for at least 28 days during the calendar year.

If you qualify for any one of the part 4, part 5 or part 6 exemptions, then there is no tax obligation.

Calculation of Tax

If you do not qualify for an exemption, you must calculate the tax owing for the calendar year.

Calculation:

Taxable value of the residential property x 1% x ownership %

Taxable value of the property is determined as follows:

Greater of:

Assessed value (obtain from property tax assessment)

OR Most recent sale price on or before December 31 of the calendar year

A Fair Market Value election can also be done to use the fair market value of the property rather than the taxable value.  The amount reported as the fair market value of the residential property must be supported by a written appraisal prepared by an accredited real estate appraiser that was done specifically for the purposes of the UHT.  This appraisal must be prepared between January 1 and April 30 of the following year.

Penalties for not filing

  • Minimum $5,000 for affected individual owners
  • Minimum $10,000 for affected corporate owners

Filing Deadline

The filling deadline for all UHT-2900 forms is April 30th of the year following; however, an extension was granted for all 2022 returns to October 31, 2023.  For future years, the deadline will remain April 30th.

Documentation

Several pieces of information are needed to file your UHT return, including a valid CRA tax identifier number (such as Social Insurance Number or Business Number).  Corporations will also need to register for an Underused Housing Tax (RU) program account identifier code.

If you engage Fulcrum group to file the UHT 2900 on your behalf we will need the following for each property you or your spouse or common-law partner own:

  • A signed engagement letter
  • Mailing address
  • Citizenship of individual owner
  • Address of property
  • Current year (2022) property tax assessment
  • Property ID from registration system (in Alberta this is the title number from Alberta Registries) – Fulcrum can generally access this number for properties in Alberta through the Alberta registries portal at no charge.
  • A description of the type of property (see types of property above)
  • Year ownership was acquired.
  • Type of ownership
    • Sole
    • Joint tenancy (ownership is evenly split between the owners with the right of survivorship, that is, when one owner dies their ownership is passed to the surviving owners and is not subject to probate).
    • Tenants in common (ownership can be freely decided, that is, when an owner dies their ownership passes according to their will and is subject to probate).
  • A list of all other owners and everyone’s percentage of ownership for each property you own
  • Original purchase price of the property. This can be confirmed through Alberta Registries if you are unsure of the exact amount.

A separate UHT-2900 return will be required for each property in which you have affected ownership. The forms can be submitted to CRA either through your CRA My Account or by mail to your designated tax centre (Winnipeg Tax Centre for Alberta residents).

 

[i] Fair rent is 5% of the taxable value of the residential property for the calendar year

[ii] A specified Canadian partnership is where all partners are either an excluded owner, and would be an excluded owner if they were not part of a partnership, or specified Canadian corporations (below)

[iii] A specified Canadian trust is a trust were each beneficiary on December 31 of the calendar year is either an excluded owner or a specified Canadian corporation.

[iv] A specified Canadian corporation is a corporation incorporated under federal or provincial laws in Canada and at least 90% of the equity and voting shares are owned by Canadian citizens, permanent residents or specified Canadian corporations.,

Will Creation – Choosing an Executor

February 6, 2023

When preparing a will, one of the most important considerations is selecting an executor to administer your estate after you have passed away. Fulfilling the executor’s role is often complex and involves legal, financial, and tax planning decisions. A will can have more than one executor, and sometimes there are jointly appointed executors as in the case of multiple children being chosen to fulfill the role. Further, there are often replacement executors named in the case that the original executor is unable to fulfill their role. Additionally, there are several terms that are synonymous with the term executor, including executrix (feminine form), estate trustee, estate trustee with a will (Ontario), and liquidator in Quebec (Heath, 2023).

Duties of an executor:

There are several steps that the executor must perform upon the passing of an individual (Heath, 2023):

  • The first requirement for an executor upon the death of the individual is to obtain a copy of the will itself. The will can often be found retained at a legal office, in an individual’s home, or in a secure deposit box. It is best practice for the location of the will to be communicated with the executor and the executor should be updated should the location change. Some provinces have official provincial will registries, but these are not mandatory.
  • Upon locating and obtaining the will, the executor then must list the assets and liabilities of the deceased individual and apply for a grant of probate from the court. This grant of probate provides authority to the executor to administer the estate. Although probate may not be required in all situations, it is required when the assets of the deceased include accounts at financial institutions or real estate.
  • Once authority to administer the estate is secured, the settling of the estate can commence. Financial institutions can be notified, assets can be sold, and debts, taxes, and other expenses can be paid. An executor’s job is completed once they distribute all assets to the beneficiaries and obtain releases from the beneficiaries.

Considerations for selecting an executor:

Some important considerations regarding the selection of an executor (Heath, 2023):

  • Contentious family dynamics should be considered, as this may significantly impact the distribution of assets if there is disagreement amongst the next of kin regarding the selection of the executor.
  • The age of the executor should be considered in relation to the person creating the will, as minor or disabled beneficiaries often will have assets held in trust for a certain amount of time or for the rest of the beneficiary’s life.
  • Ensure that the chosen executor indeed wants to perform the role, as there is no obligation for the chosen executor to act.
  • An executor should be made aware that although they are not liable for the debts of the deceased, they can still be held liable for errors or omissions they make when administering the estate. This can be mitigated by purchasing errors and omissions insurance.
  • The executor should be informed that they may engage a third party for assistance regarding the administering of the estate, such as a lawyer or trust company. Further, the individual can name one of these third parties as the executor from the beginning, although this comes with additional costs for the added peace of mind.

Additional considerations:

There are also additional considerations for the executors themselves (Heath, 2023):

  • An executor may charge executor fees that are dictated by provincial guidelines.
  • In Alberta, the fee is based upon the size of the estate’s capital per the following:
    • 3%-5% on the first $250,000 ($7,500 – $12,500)
    • 2%-4% on the next $250,000 ($5,000 – $10,000)
    • 5%-3% of the remaining amount
  • The individual who creates a will can also specify executor compensation directly in the will itself.
  • Typically, when the executor is a beneficiary, they may waive the executor fees as this is taxable income whereas the inheritance received from the estate is tax-free for the beneficiary.

Other general considerations and situations that arise may include (Heath, 2023):

  • Typically, an estate is settled from a few months to a year. This timeline is heavily influenced by the complexity of the individuals’ assets and family dynamics.
  • Dying without first creating a will is called dying intestate. There is a common misconception that when an individual dies intestate that the government keeps the entire estate. In actuality, the estate is distributed based upon the applicable provincial laws of intestacy with a pre-determined division schedule to the surviving next of kin. A family member can still apply to be administrator of the estate, and the administrator performs the same duties as the executor.

Choosing and executor for your estate requires careful consideration regarding the above points and should be undertaken with due care. Additionally, the executor should be made aware of their responsibilities and what may be required of them. Further, the executor should be made aware that should the job prove to be too complex for them, outside assistance can be engaged for a fee.

References

Heath, J. (2023, January 26). Here’s what you need to know about picking an executor for your will. Retrieved from FInancial Post: https://financialpost.com/personal-finance/family-finance/what-you-need-to-know-picking-executor-for-your-will

Alberta Affordability Action Plan

January 17, 2023

Danielle Smith announced that seniors, families with children under 18, and Albertans on benefit programs may be eligible for a non-taxable benefit of up to $600 per person (or per child in the case of families) to help with the rising cost of living.  This will be paid out at $100/month over six months.

Application opens January 18th and will remain open until June 30, 2023. To be eligible for these benefits, you must sign up for a verified Alberta.ca account. The following information will assist you in finding out if you are eligible and whether you need to apply or if you will automatically be enrolled:

Eligibility Requirements:

Eligible seniors 65 and older:
  • Age 65 or older by June 30, 2023.
    • If you turn 65 during the application period, you may apply but your payments will be held until your birth month. You will receive $100 for every month you are 65.
  • Adjusted household income is below $180,000 according to your 2021 tax return.
  • Alberta resident as of November 30, 2022, and remain so on the first day of each month between January and June to be eligible for each month’s payment.
  • Have not been incarcerated for 90 days or more during the January to June 2023 period.
  • Payments are generally seen at the end of the month the application is successfully completed.
    • If you apply between the period of January and June, payments will be retroactive to the first month you are eligible.
Eligible families and caregivers with children under 18:
  • Parent or guardian of dependent children who are under 18 between January 18 and June 30, 2023.
    • If your child turns 18 during the application period, you will get $100 for every month they are under 18.
    • If you have a baby during the application period, you will get $100 per month starting the month they are born.
    • If you share custody 40 to 60% of the time, both parents can apply to get $50 per month for each child.
  • Adjusted household income is below $180,000 according to your 2021 tax return.
  • Alberta resident as of November 30, 2022, and remain so on the first day of each month between January and June to be eligible for each month’s payment.
  • Have not been incarcerated for 90 days or more during the January to June 2023 period.
  • Note that, if you meet these requirements, you will be eligible for $100/month for each child in your custody.

Who needs to apply:

  • Seniors over 65 that are not receiving Alberta Seniors Benefit, AISH, or Income Support.
  • Families with biological or adopted children that are under 18 years of age.

Who is automatically enrolled:

  • Foster and kinship caregivers that have children under 18 will be automatically enrolled to receive the benefits, but need to apply for biological or adopted children.
  • Albertans on eligible benefit programs receiving:
    • AISH
    • Income Support
    • Alberta Seniors Benefit
    • Persons with Developmental Disabilities (PDD)
  • If you receive benefits and have children under 18, you must apply to receive the $100 per child, per month.

Contact

Phone: 780-532-4641
Fax: 780-532-4947
Toll Free: 1-800-422-6093
Email: office@fulcrumgroup.ca

#102, 9919 – 99 Avenue
Grande Prairie, AB
T8V 0R6

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