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Government Tax Update

January 11, 2024

The Federal and Ontario government recently had their fall economic statements. There were a number of updates that we want to make you aware of.
Please note that all of the changes below are proposed and could change prior to coming into law.
Federal Government Update

  • Underused Housing Tax (UHT)- all below changes are for the 2023 tax year unless otherwise stated.
    • The government is proposing to make "specified Canadian corporations", partners of "specified Canadian partnerships" and trustees of "specified Canadian trusts", "excluded owners" for UHT purposes. These excluded owners would no longer have UHT reporting obligations. This will eliminate a large number of filing obligations for taxpayers who wouldn't otherwise have to pay tax. Note that this change is proposed only for the 2023 taxation year and going forward.
    • Reducing the minimum non-filing penalties from $5,000 for individuals ($10,000 for non-individuals) to $1,000 and $2,000 respectively, this amendment would apply retroactively to the 2022 UHT returns.
    • Introducing a new UHT exemption for residential properties held as a place of residence or lodging for employees (excluding property located in a metropolitan area with 30,000 or more residents).
    • Providing that unitized (condominiumized) apartment buildings are not "residential property" for UHT purposes. This change is effective for 2022 and subsequent calendar years.
    • Ensuring that an individual or a spousal unit can claim the UHT "vacation property" exemption for only one residential property for a calendar year. This change is effective for 2024 and subsequent calendar years.
  • Non-compliant Short-Term Rentals
    • The government intends to deny income tax deductions for expenses incurred to earn short-term rental income, including interest expenses:
      • in provinces and municipalities that have prohibited short-term rentals
      • for short-term rental operators who are not compliant with the applicable provincial or municipal licensing, permitting, or registration requirements
    • These measures would apply to deny all expenses incurred on or after January 1, 2024.
  • Removing the GST/HST From Psychotherapists' and Counselling Therapists' Services
    • The government proposes that psychotherapists and counselling therapists be added to the list of health care practitioners whose professional services rendered to individuals are exempt from the GST/HST.
  • Employee Ownership Trusts
    • To encourage more business owners to sell to an Employee Ownership Trust, the government proposes to exempt the first $10 million in capital gains realized on the sale of a business to an Employee Ownership Trust from taxation, subject to certain conditions.
    • This incentive would be in effect for the 2024, 2025, and 2026 tax years.
Ontario Government Update
  • Enhancing the Ontario HST rebate for purpose built rental housing
    • Currently the Ontario HST New Residential Rental Property Rebate is available for certain purchases of a newly constructed or substantially renovated residential rental property. The current rebate is equal to 75 per cent of the provincial portion of the HST paid, up to a maximum rebate of $24,000 per qualifying residential unit.
    • To encourage the construction of more purpose-built rental housing, the government is taking steps to enhance the rebate so that it is equal to 100 per cent of the provincial portion of the HST paid, with no maximum rebate amount, for qualifying new purpose-built rental housing. This would mirror the proposed enhancements to the federal Goods and Services Tax/Harmonized Sales Tax (GST/HST) New Residential Rental Property Rebate of the 5 per cent federal portion of the HST, and together would remove the full 13 per cent HST on qualifying new purpose-built rental housing in Ontario.
    • Eligible new residential units would be those that qualify for the existing GST/HST New Residential Rental Property Rebate and are in buildings with at least:
      • Four private apartments (i.e., a unit containing a private kitchen, bathroom and living areas), or 10 private rooms or suites; and
      • Ninety per cent of residential units designated for long-term rental.
    • The enhanced provincial rebate would apply to qualifying projects that begin construction on or after September 14, 2023, and on or before December 31, 2030, and complete construction by December 31, 2035. This timeframe would be aligned with the newly enhanced federal rebate.
    • Substantial renovations of existing residential complexes would not be eligible for the enhanced rebate but would remain eligible for the existing rebate.

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