On November 21, 2023, Finance Minister Chrystia Freeland gave the government’s 2023 Fall Economic Update. The Update projects deficits of $38.4 billion for 2024–25 and $38.3 billion for 2025–26, with a $40.0 billion deficit for 2023–24. The Update offers relief from the Underused Housing Tax (UHT), improves the Canadian Journalism Labour Tax Credit, offers more design information on previously announced clean economy credits, and suggests new regulations for GST/HST joint venture elections—all while maintaining the same tax rates for individuals and corporations. Finance has released draft legislation for GST/HST joint venture elections and suggested adjustments to the UHT, but it also notes that it will provide more precise details on some of these announcements in the future.
UHT
Under the UHT regulations, the Update offers some property owners extra relief. Finance specifically notes that under new regulations, trustees of “specified Canadian trusts,” partners in “specified Canadian partnerships,” and “specified Canadian corporations” will not be required to disclose; instead, they will be regarded as “excluded owners” for UHT purposes. Furthermore, Finance suggests offering assistance to specific other Canadian ownership arrangements. These modifications would take effect in 2023 and in upcoming calendar years. The Update additionally contains actions to:
• Effective for 2023 and later calendar years, establish a new UHT exemption for residential properties in specific lower population areas used as staff housing or places of residence.
• State that, as of 2022 and later calendar years, apartment buildings that are unitized, or “condominiumized,” are not considered “residential property” for the purposes of UHT.
• For 2022 and later calendar years, lower the minimum non-compliance fines to $1,000 for individuals (from $5,000) and $2,000 for companies (from $10,000) each failure.
• State that, starting in 2024 and going forward, a single residential property may be excluded from UHT taxes as “vacation property” for an individual or spousal unit.
Along with the Update, Finance presented draft legislation and regulations and asked for input from stakeholders by January 3, 2024.
What does this mean for you?
For the year ended December 31, 2023 and beyond, 99% of KBH clients that were required to file the UHT return for 2022 because they owned residential property in trust for another owner, owned property in a partnership or through a corporation will no longer have to file a UHT return. They will be treated as exempt owners with no filing requirement.
Short-term Rentals (AirBnb and VRBO)
According to the Update, taxpayers will no longer be entitled to deduct specific costs (expenses) against their taxable income associated with short-term rental income, like Airbnb or VRBO. Short-term rental income is generally considered to be rental income for a period of less than 30 consecutive days. In particular, taxpayers will not be permitted to deduct expenses:
• For properties in provinces and municipalities where short-term rentals are forbidden, for costs undertaken to generate income from short-term rentals, including interest costs
• For instances in which operators of short-term rentals fail to adhere to relevant provincial or local licensing, permission, or registration requirements.
The legislation has not yet been tabled but is expected to be effective for expenses incurred on or after January 1, 2024. We will provide an update once the legislation has received Royal Assent.
While these are the two of the most significant items included in the 2023 Fall Economic Update, additional measures and changes including ways to make mortgage renewals easier, updated clean energy tax credits and more can be found here: https://www.budget.canada.ca/fes-eea/2023/home-accueil-en.html