Key Updates from Canada's 2023 Fall Economic Statement: What You Need to Know
Unpacking the Latest Economic Changes: Housing, Taxation Changes + More.
As most of Canada has seen their first snow fall of the year, and people are swapping out their pumpkin spice lattes for peppermint mochas, it is safe to say that fall is coming to an end. As Christmas trees & holiday music are popping up in shopping centres across the country, the Canadian government have been busy working on their Fall Economic Statement, which was released on November 21, 2023.
This update contained a number of important announcements & legislative changes, with an unsurprising focus on the Canadian housing market. Some of the most welcome announcements are those related to the Underused Housing Tax (UHT); there have been some serious changes to the UHT regime that will be helpful to many Canadians caught under these new rules. Below is a summary of the changes to the UHT regime as outlined in the Fall Economic Update:
Elimination of Filing Requirement for Certain Owners: To reduce the compliance burden for Canadians owning real estate, the government proposes to classify "specified Canadian corporations," partners of "specified Canadian partnerships," and trustees of "specified Canadian trusts" as "excluded owners" for UHT purposes. These entities no longer have UHT reporting obligations. Unfortunately, this relief is only for the 2023 tax year and onward, so any Canadians required to file a UHT return for property owned in 2022 need to ensure they complete these filings before the new extended deadline of April 30, 2024. This new exemption from the UHT filing requirement applies to Canadian entities such as a Canadian corporation which has less than 10% of its votes or equity value owned by foreign individuals or corporations.
Reduction of Minimum Failure to File Penalties: The government proposes to reduce the minimum penalty for failing to file a UHT return. For individuals the penalty will be reduced from $5,000 to $1,000 per late filed return, and for corporations the penalty will be reduced from $10,000 to $2,000 per late filed return. These changes will apply from the 2022 calendar year onwards, meaning any Canadians still required to file a UHT return for the 2022 tax year (as per point 1 above) will have a significantly reduced late filing penalty if they do not meet the April 30, 2024 filing deadline.
Exemption for Certain Employee Accommodations: A new UHT exemption is proposed for residential properties held as a place of residence or lodging for employees. This exemption will be available for properties located outside of major population centers (generally those with 30,000 or more residents), starting in 2023 and for subsequent calendar years.
Additional Technical Changes: The government is proposing to introduce a few other technical changes to the UHT regime to ensure that the UHT applies as intended. These include classifying unitized (‘condominiumized’) apartment buildings as not being "residential property" for UHT purposes from 2022 onwards, and limiting the UHT "vacation property" exemption to only one residential property per calendar year for an individual or a spousal unit, effective from 2024 onwards.
In addition to the changes to the UHT regime, there were a number of other measures announced in the Fall Economic Update, such as:
The intention to deny income tax deductions for expenses incurred to earn short-term rental income, such as mortgage interest, in provinces or municipalities that have prohibited short-term rentals. These deductions would also be denied when short-term rental operators are not compliant with provincial or municipal licensing, permitting, or registration requirements. These would apply to all expenses incurred on or after January 1, 2024.
A proposal to simplify GST/HST filings for those involved in a joint venture. Rather than each participant separately accounting for GST/HST, they would instead be able to file an election to have their GST/HST accounting requirements simplified.
A proposal to exempt the services provided by psychotherapists & counselling therapists to individuals from GST/HST.
Allowing adoptive parents to access the 15 weeks of EI maternity benefit.
The creation of a Canadian Mortgage Charter, which would establish measures to ensure the fair treatment of Canadian borrowers by their financial institutions.
The intention to proceed on a number of measures announced in the 2023 federal budget, such as the alternative minimum tax (AMT) for high-income individuals, updates to the general anti-avoidance rule (GAAR), digital services tax, and many more. A full listing can be found on the last 2 pages of the Appendix to the Fall Economic Statement.
If you want to read the full 141-page government document, you can click here to access the full update from the Government of Canada's website. Otherwise, there are bound to be an overwhelming amount of summary articles released in the coming days. In the meantime, here are a few summaries we've found to be good at highlighting the announcements that will be relevant to most people: