The Family Trust Nobody Told the Tax Filer About

The situation

Adaeze, a university professor, and Giulia, a professional engineer, had bought a house in Markham several years earlier for their daughter Lucia to live in. Lucia worked as a gig economy driver, piecing together rideshare and delivery jobs while she built up savings and credit history toward eventually owning a place of her own. Rather than putting the house directly in Lucia's name, Adaeze and Giulia's accountant at the time had suggested holding it in a family trust, with Adaeze and Giulia as trustees and Lucia as the beneficiary who would live there. The arrangement made sense for estate planning: it kept the property out of Lucia's name for creditor and matrimonial protection reasons while she was still early in her working life, and it let her parents control the timing of an eventual transfer.

The couple came to Treadstone Law after a friend mentioned a newer federal filing called the Underused Housing Tax, wondering aloud whether it might apply to a second property that wasn't their own primary residence. Adaeze and Giulia weren't sure the tax had anything to do with them — the house wasn't vacant, and Lucia lived there full time. They asked for a straightforward compliance review: did they need to file anything, and if so, what.

What the review found

The Underused Housing Tax was introduced to discourage foreign owners from leaving Canadian residential property vacant, and most Canadian homeowners never needed to think about it. For the years it was in force, the tax applied annually, calculated as a small percentage of a property's value, unless the owner was exempt. (The tax has since been eliminated for 2025 and later years, but the filing obligation for 2022 through 2024 still stood at the time this review took place.) But the filing obligation is broader than the tax itself. An individual Canadian citizen or permanent resident who owns a home directly in their own name is treated as an excluded owner and has no filing obligation at all, regardless of how the property is used.

Trustees are not excluded owners. Because the Markham property was registered in Adaeze and Giulia's names as trustees of a family trust rather than in their personal capacities, they fell into a separate category — affected owners — who must file an annual return for the property whether or not any tax ends up being owed. Their accountant's estate planning advice had been sound on its own terms; nobody along the way had connected it to this newer federal filing requirement, because the trust was set up before the tax existed and nothing about day-to-day life at the property had changed since.

The good news was that the review also found a solid basis for an exemption. The tax includes relief for a property occupied by a qualifying occupant, and for a child of the owner specifically the test is narrow: the child has to be a Canadian citizen or permanent resident living in the property for the required period each year. There is no requirement for a written lease or for rent to be paid at a fair-market rate — that written-agreement, fair-rent standard applies to an unrelated occupant, not to an owner's own child. Lucia's citizenship and her residency fit that description, and the original trust deed itself, along with bank and utility records showing her living at the address year-round, supported the claim. The problem wasn't that the family owed the tax. The problem was that nobody had filed the paperwork proving they didn't — and the filing itself was already overdue for more than one prior tax year, with the deadline for the current year approaching fast.

What we did

1. Confirmed the trust's filing status. We reviewed the trust deed and land registry documents to confirm that both Adaeze and Giulia, as registered trustees, were separately required to file — not just the trust as an abstract entity, but each named trustee individually for their own share of the property. Establishing this early ruled out any hope that only one return, or one signature, would be enough to bring the family current.
2. Identified every year requiring a return. The tax had applied since it came into force, and the family had not filed for any prior year on record. We mapped out which years were already late and which return was still due on time, working from the property's purchase date forward, so that nothing was missed and nothing was filed twice by mistake.
3. Assembled the exemption evidence. We gathered the documentation needed to support the qualifying occupant exemption for each year in question: the trust deed naming Lucia as beneficiary, proof of her Canadian citizenship, and records showing her address history and continuous residency at the property. Because the exemption for an owner's child turns on citizenship and residency rather than on any written lease or rent arrangement, this was the actual evidence the exemption required — not the broader kind of paper trail a non-relative occupant would need. This turned a bare filing obligation into one that could actually be discharged without owing tax.
4. Filed the outstanding returns before the current deadline. We prepared and filed the late returns for the prior years alongside the current year's return, claiming the qualifying occupant exemption throughout, so that all of the family's obligations were brought current in a single coordinated filing rather than trickling in piecemeal and inviting closer scrutiny of each individual submission from a reviewer working through a backlog.
5. Flagged the recurring deadline for as long as the obligation continued. Because the filing repeated every year the tax remained in force, we gave Adaeze and Giulia the deadline directly rather than leaving it to whichever professional happened to be engaged that year, so no later return could slip through the same gap that had let the earlier ones go unfiled.

The outcome

All of the outstanding returns were filed before the relevant deadlines ran out, each one claiming the qualifying occupant exemption. No tax was owed on the property for any year, and because CRA's transitional relief waived the failure-to-file penalty and interest on late Underused Housing Tax returns filed within an extended administrative deadline, none of the overdue years generated a penalty either — the timing of the filing is what mattered, not whether CRA had already noticed the gap on its own. Had the family not caught the issue in time, the exposure would have been real: the failure-to-file penalty applies to each trustee separately, for each year missed, whether or not any tax was ultimately payable, calculated as the greater of a flat minimum per owner per return or a percentage of the tax that would otherwise have applied plus an additional amount for every month the return stayed outstanding. Across two trustees and several overdue years, that formula adds up to a meaningful five-figure sum even where no tax is ultimately owed — and none of it was ever charged, because the returns went in before the relief window closed.

The Underused Housing Tax was eliminated for the 2025 and later calendar years, so the filing obligation on the Markham property ended with the 2024 return. Adaeze and Giulia's returns are filed and complete for every year the tax applied, and Lucia, for her part, still lives in the house and still hadn't heard of the tax at all until her parents mentioned it — which is exactly the kind of gap this case closed. The trust continues to serve its original estate planning purpose, and the federal paperwork that briefly came with it is now behind them.

What made the difference here was timing rather than any complicated legal argument. The exemption Adaeze and Giulia relied on was always available to them; the facts supporting it — Lucia's residency, the trust deed, the paper trail showing the arrangement was genuine — had existed since the day the trust was set up. What had been missing was simply the act of filing to claim it. Once the review flagged the gap, closing it was a matter of weeks, not months, because none of the underlying evidence had to be created after the fact. That is generally true of Underused Housing Tax exposure: the hard part is almost never proving the exemption applies, it is realizing in the first place that a return needs to be filed at all.

The couple also asked, reasonably, why their accountant hadn't flagged it originally. The honest answer was that the trust predated the tax by several years, and the accountant's engagement had never been renewed to include an annual look at new federal filing obligations tied to how title was held. It is a common gap: professionals are typically retained for a specific task at a specific moment, and a new tax that touches an old structure can fall into the space between engagements unless someone is specifically asked to look for it.

What you can learn from this