GST/HST New Residential Rental Property Rebate
You may be eligible for the GST/HST new residential rental property (NRRP) rebate if you are in one of the following situations: You are a landlord who purchased a newly constructed or substantially renovated residential rental property You are a landlord who built your own residential rental property You are a landlord who made an addition to a multiple-unit residential rental complex You are a builder who had to account for the GST/HST under the self-supply rules because you sold a residential unit to an individual and leased the related land to that individual under a single written agreement (available only if the individual is eligible to claim the new housing rebate) You are a person¹ who had to account for the GST/HST under the self-supply or change- in-use rules because you made an exempt lease of land used for residential purposes (such as the rental of a residential lot or a site in a residential trailer park) Are you a builder for GST/HST purposes? For GST/HST purposes, the term “builder” has a very specific meaning that is not limited to a person who physically constructs housing. You do not have to physically construct or substantially renovate a house yourself to be a builder for GST/HST purposes. Generally, you are a builder of a residential complex, or an addition to a multiple unit residential complex, if one of the following situations applies to you: You build or substantially renovate the complex or you build the addition, on land you own or have acquired by way of lease, or you hire someone else to build or substantially renovate the complex, or to build the addition, on land you own or have acquired by way of lease. However, you are not a builder if your only interest in the land is a right to purchase the housing or an interest in the housing from a builder You acquire an interest in the housing when it is already under construction or substantial renovation, or when the addition is under construction, except where the interest is only a right to purchase the housing or an interest in the housing from a builder You acquire an interest in the housing before anyone has lived in it and your primary purpose in acquiring the interest is to either sell the house, sell the interest, or to lease the house to a person who will not use the house for their own personal use (for example, you lease the house to another landlord) You acquire an interest in a residential condominium unit either before the complex is registered as a condominium or before anyone has lived in it, and your primary purpose in acquiring the interest is to either sell the unit, sell the interest, or to lease the unit to a person, such as a landlord, who will not use the unit for their own personal use Restrictions The NRRP rebate will not be paid in the following situations: You are an individual who is entitled to claim the GST/HST new housing rebate for a newly constructed or a substantially renovated residential complex, whether the rebate […]
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Severance and Joint Tenancy of a Matrimonial Property
While a joint tenancy typically allows for a right of survivorship to the surviving tenant(s); this is not de facto the case with matrimonial properties. Section 26 of the Family Law Act (FLA) in Ontario states that if a spouse dies owning a share in a matrimonial home with a third party (someone other than their spouse), the joint tenancy is considered severed at the time of death. This means that the surviving spouse has certain rights under the FLA that come before the rights of the third party. This can sometimes lead to unfair situations where the third party may lose their interest in the property. Consider this scenario: A and X are joint tenants of a matrimonial home, and A passes away. B, A’s surviving spouse, receives a substantial portion of the estate but chooses not to elect their FLA entitlement because they are satisfied with the provisions set out in A’s will. The residue of A’s estate is left to charities. Under Section 26 of the FLA, half of the jointly held property in A’s estate would pass to the charities, even though B did not opt for their FLA entitlement. As a result, X loses half of their interest in the jointly held property, which is passed to the charities. In the case of Whaley Estate v. Whaley, the court examined a scenario in which a spouse who jointly owned a matrimonial home with a third party passed away, resulting in the surviving joint tenant receiving only 50% of the property. The remaining half was given to charities as part of the deceased’s estate. The surviving spouse did not exercise their entitlement under the FLA and hence, did not inherit any share of the property. However, the judge ultimately ruled that the third party could not be denied the right of survivorship, which is common law principle, due to strict reading of the FLA. The judge noted that such an express limitation was not present in the FLA. Although the judge ultimately ruled in favour of the joint tenant (third party), one should still have a spousal agreement or marital contract in place to protect one’s interests in the event of separation or death. Without such an agreement, unexpected and potentially devastating financial consequences may arise, where a portion of the jointly held property is lost. A spousal agreement can provide clarity and certainty for both parties and prevent disputes and potential litigation down the road.
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Assignment Sales and HST
An assignment sale is a type of real estate transaction that occurs when a buyer of a pre- construction home or condo decides to sell their rights to purchase the property to another buyer before the construction of the building is complete. This type of sale transfers the purchase agreement from the original buyer to the new buyer (known as the “assignee”) As of May 2022, the government introduced a new rule requiring HST (Harmonized Sales Tax) to be paid on all assignment sales of single-unit residential or condo properties that are newly constructed or renovated. This means that the assignee must pay HST on the difference between the original purchase price and the resale price. For example, if a pre-construction home was originally purchased for $500,000 and then sold as an assignment sale for $600,000, the assignee must pay $13,000 in HST (calculated as 13% of $100,000, which is the difference between the original purchase price and the resale price). It is the responsibility of the lawyers involved in the transaction to make sure that the HST portion is remitted correctly, taking into account various factors such as the date of the assignment and the completion date of the building. Despite the introduction of HST, an assignment sale still continues to have many benefits, such as being a more convenient way for original buyers to sell their rights to the property without having to go through hurdles of selling a fully completed property.
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Certificate of Pending Litigation (CPL)
A Certificate of Pending Litigation (CPL for short) is an encumbrance on title often registered by an party with an interest to warn the public that the property is subject to litigation. Registering a CPL should have the effect of preventing all dealings with the property (sale, mortgage, financing, etc.) while the litigation is pending. Once the dispute is resolved, the CPL can then be discharged from the property. When determining whether to grant a CPL, a court will first determine: 1) If there is a triable issue affecting an interest to the property. If this threshold is met, then 2) The court will consider if granting a CPL is an equitable relief based on a number of factors, including, but not limited to: Whether the plaintiff is a shell corporation; Whether the land is unique; The intent of the parties in acquiring the land; Whether there is an alternative claim for damages; The ease or difficulty in calculating damages; Whether damages would be a satisfactory remedy; The presence or absence of a willing purchaser; The harm to each party if the CPL is or is not removed with or without security; Whether the interests of the party seeking the CPL can be adequately protected by another form of security; and Whether the moving party has prosecuted the proceeding with reasonable diligence. Two recent decisions from the Ontario Superior Court have reaffirmed the above-mentioned factors a court will consider when determining if a court order for a CPL will be granted. Pacione v. Pacione, 2019 ONSC 813 In Pacione v. Pacione, 2019 ONSC 813, Robert Pacione loaned $250,000 to his brother, Mario Pacione, pursuant to a promissory note signed by the both of them. The note stated that the loan must be repaid by Mario within 90 days. If Mario didn’t repay the loan within that time, the note stipulated that Mario would authorize a third mortgage against the property in dispute. The note further stated that the property was owned by a numbered corporation, where Mario purportedly acted as the sole principal. Mario did not pay back the loan and no mortgage was placed on the property because it turned out that Mario was not a director or officer of the corporation the time that the promissory note was executed. Using the test above, Justice Conlan observed that the test for a CPL was most certainly met in this case. The note had established that Robert had a reasonable claim to an interest in the property. The fact that Robert had also requested monetary damages was no bar to the success of the motion for the CPL because otherwise no mortgage holder who sues the debtor could ever obtain a CPL. The Court also recognized that any prejudice to Mario had to surrender to the very significant prejudice to Robert if the CPL was not registered (which would likely mean he would lose $250,000). Notably, the court also stated that while Mario had no legal authority to bind the corporation company and the property in question, this fact did not defeat Robert’s interest in the property, as there was […]
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Vacant Home Tax
What is the Vacant Home Tax? Effective at the begging of 2023 the City of Toronto’s Vacant Home Tax requires homeowners to declare whether or not their property is vacant by February 2, 2023. This tax aims to help boost the housing market by encouraging owners to sell or lease unutilized properties. All residential property owners are required to declare the status of their property annually even if they declare they live there. What is considered a Vacant Home? According to the city, a property is considered vacant when it is not used as the principal residents by the owners or any permitted occupants or was unoccupied for 6 months or more during the previous calendar year. What does the Vacant Home Tax not apply to? Although all homeowners in the City of Toronto are required to submit a declaration of occupancy status the tax will not apply to: Properties that are the principal residence of the owner Properties that are the principal residence of a permitted occupant or tenant properties that qualify for an exemption due to the following: Death of a registered owner Repairs and renovations Principal resident is in care Transfer of legal ownership Occupancy for full-time employment Court order to make a declaration or to learn more information visit this link: https://www.toronto.ca/services-payments/property-taxes-utilities/vacant-home-tax/
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Residential Purchase Ban for Non-Canadians
On January 1, 2023, the Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”) will go into effect for a period of two years. The Act prohibits “non-Canadian” persons, foreign businesses, and other parties regarded to be “non-Canadian” from directly or indirectly purchasing residential real estate. Contractual commitments made or assumed before January 1, 2023, however, will remain unaffected. Who will be deemed “non-Canadian” under the Act? -Individuals who are not Canadian citizens or permanent residents of Canada. – Corporations that are not incorporated in Canada. – Corporations “controlled” by foreign corporations or individuals who are not Canadians or permanent residents of Canada (The Consultation Paper indicated that the threshold for "control" would be: (1) direct or indirect ownership of 3% or more of the value of equity or voting rights of a corporation, or (2) control in fact). What types of “residential property” purchases are prohibited? – Detached houses or similar buildings containing three dwelling units or less; – A part of a building that is a semi-detached house, rowhouse unit, residential condominium unit, or similar premises that is intended to be owned apart from any other unit in the building; – Other properties prescribed by future regulations (It is expected that vacant land and cottages outside of major metropolitan areas will be exempt from the ban); What exemptions will be available? -Refugees; -Permanent residents of Canada; -Temporary residents who satisfy conditions prescribed in the future regulations (Students and foreign workers may be eligible); -A non-Canadian individual who buys residential property with their Canadian spouse or common law- partner (this also applies if their spouse is a permanent resident of Canada, a person registered as an Indian under the Indian Act, or a refugee); How will pre-existing and future contracts be impacted? -The prohibition does not apply where a non-Canadian becomes liable or assumes liability under a contract of purchase and sale prior to January 1, 2023. What are the consequences of violating the ban? -Every person or entity who violates the prohibition, and every person or entity who knowingly helps a non-Canadian who is subject to the prohibition buy a residential property, will be guilty of an offense and liable to be fined up to $10,000. -Any directors, officers, agents, senior officials, or managers of a corporation or entity that violates the prohibition may be held personally liable if they are involved in helping a non-Canadian violate the prohibition. -Following a conviction for a violation of the new law, the federal government may apply to a provincial superior court for an order requiring the property to be sold at no more than the original price. Going forward, future regulations will most likely clarify the ambiguous elements of the prohibition. Some legal analysts are speculating that the prohibition will be struck down and deemed unconstitutional. Nevertheless, those in the real estate industry should brace themselves for the next two upcoming years. Not just foreign buyers, but real estate agents, lawyers, and developers, all need to be aware of the risks and liabilities that will be introduced to the industry with this new prohibition.
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Anticipatory Breach of the Agreement of Purchase and Sale
When involved in a real estate transaction, many individuals are already familiar with the Agreement of Purchase and Sale (APS). The APS is a written contract that determines the terms of the sale of a property as well as the requirements and obligations that both the vendor and the purchaser must abide by. In real estate transactions, breaches of the APS may often occur, such as the failure to deliver funds by the closing date set out in the APS. But there exists another type of breach of contract: an anticipatory breach/repudiation. An anticipatory breach is defined by when one party to a contract, before the date they must preform an obligation, gives notice that they will not preform their obligation—that is, they intend to breach their obligation.1 Parties can give notice through words or conduct. When a party receives notice of an anticipatory breach, they have two options. First, they may accept the repudiation, and all parties will be relieved of their obligations under it, and the innocent party may sue for damages immediately. Second, If the innocent party affirms the contract, the contract remains alive in all respects for both parties. But the party who does not accept the repudiation must be willing and able to render their obligations as per the terms of the contract. But what is meant by intention when one party to an APS intends to repudiate an agreement or show an intention before the closing date to not complete the contract? This issue was dealt with by the Ontario Superior Court in Sheik v Lebovic Enterprises Limited. 2 The legal test for anticipatory breach is whether a reasonable person would conclude that the breaching party no longer intends to be bound by it. In Sheik, the purchaser, Sheik, entered into an agreement with the builder, Lebovic Enterprises Limited, to purchase a pre-construction home. The plans for the pre-construction home included a door from the garage into the house, if the grade permitted it. When the agreement was entered into, the grade had not yet been determined. Upon visiting the construction site, Sheik noticed there was no door from the garage into the house. Sheik emailed the builder inquiring into this issue, and after not receiving a satisfactory answer, claimed he would be going to court over the builder’s inability to offer a satisfactory response over the issue of the garage door. In response, Sheik received correspondence from the builder’s lawyer stating Sheik had breached the APS. Sheik responded that he was still interested in moving forward with the sale. The builder, without corresponding with Sheik, transferred title of the home to a third-party. Sheik then sued for damages. The builder argued that Sheik’s threat to sue, among other things, constituted an anticipatory breach of the APS. The Court disagreed with the builder. Contrary to the builder’s point, Sheik’s repeated attempts at communication and statement that he wished to go through with the sale showed no clear intention that he intended to repudiate the contract. 3 Moreover, Sheik’s email including the possibility of a lawsuit amounted to nothing more than an idle threat. The […]
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Mirror Wills vs. Mutual Wills
Spouses who intend to make their wills together should be attentive to the differences between mirror wills and mutual wills. Both of these types of wills are generally produced by spouses who seek to pass down their estate in an identical manner. However, despite having a shared goal, there are crucial differences that spouses (or two parties) should keep in mind when creating their will. Mirror wills simply mean that two parties created individual wills that have reciprocal terms. A mutual will is a mirror will that goes one step further by including a clause that the surviving party cannot revoke or change the terms of a will after the death of the other party. In most circumstances, a court will only find a mutual will to exist when it has been explicitly stated in writing. Edell v. Sitzer, (2001) 55 OR (3d) 198 (Ont SCJ), a leading Ontario case, established that a mutual will must: 1. satisfy the requirements for a binding contract and not be just some loose understanding or sense of moral obligation; 2. be proven by clear and satisfactory evidence; and 3. include an agreement not to revoke the Wills. Therefore, absent a written clause, the court is hesitant to assert that a will is mutual. In recent years, however, there has been a push in case law that has challenged the requirement that a mutual will is explicitly such. In Rammage v. Estate of Roussel (ONSC 2016), the issue at hand was that there was no written agreement that the wills of the spouses were mutual, but the court found that there was a verbal agreement between the spouses while they were both alive that their wills would be mutual (specifically that their estates would be equally divided among their respective children). The court found, based on corroborating evidence, that the verbal agreement between the two for their wills to be mutual was sufficient to satisfy the requirements of a binding contract. Furthermore, neither spouse had objected to each other’s wills while they were still both alive. Based on this, the court established that their wills had been mutual. This case was contentious, generating a lot of discussion among legal professionals, because it pushed back against the requirement that a mutual will must be explicitly such and gave a degree of credence to verbal contracts (albeit based on strong evidence). That being said, individuals should still be cautious as courts will still hesitate, especially when there is a lack of evidence, to make such assertions. For this reason, couples should do their best to be as clear as possible when drafting their wills, especially if they have had children outside of their marriage or common-law relationship. Mutual wills guarantee that a surviving spouse cannot redirect the inheritance of an estate to the sole benefit of their own children at the expense of their step-children. Surviving Spouse’s Claims under the Family Law Act (FLA) When the Family Law Act (FLA) of Ontario was passed in 1986, the administration of estates became more intertwined with family law. Previously, only legal claims under Part V of the Succession […]
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Capital Gains Tax on Your Principal Residence
In Canada, there are a number of laws surrounding the taxation of capital gains of an individual’s principal residence. When you sell your home, you may be required to pay taxes on any realized capital gains. Generally, individuals are exempt from paying taxes on capital gains if said property was solely your principal residence during every year you owned it. However, if the property is not your principal residence for any of the time it was in your possession, you will not be entitled to the exemption for principal residences on all or part of the capital gains you are required to report. A property is designated as a principal residence when you sell or are considered to have sold all or part of the property. When selling, Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other than a Personal Trust) must be used to designate your property as your principal residence. Only page 1 of T2091 must be filled out if the property was your principal residence for all the years you owned it or for all years except the year in which disposition. What is a Principal Residence? Your principal residence can be any of the following types of properties: a house; a condominium; a cottage; an apartment in an apartment building; an apartment in a duplex; a trailer, mobile home, or houseboat. These types of properties do not automatically qualify to be a principal residence. To be a principal residence, a property must meet all of the following four conditions: 1. It is a housing unit, leasehold interest in a housing unit, or a share of capital stock you own in a co-operative housing corporation only for the purpose of acquiring the right to inhabit a housing unit owned by that corporation 2. You own the property alone or jointly with another individual 3. You and your family—current or former spouse, or common-law partner, or any of your children—must have lived in the property at some point during the year. 4. The property must be designated as your principal residence Usually, the land your property is located on can be part of your principal, but the amount of land is limited to 1.24 acres or 0.5 hectare. Selling Your Principal Residence The sale of your principal residence must be reported to the CRA. Since 2016, the CRA only allows the principal residence exemption to apply if you report the sale and designation of your principal residence on your income tax return. If an individual forgets to designate their property as their principal residence the year they sell the property, it is possible to ask the CRA to amend your income tax return, but late penalties may apply. For situations in which your property was not your principal residence for every year you owned it, you must report the capital gains for the years in which the property was not designated as your principal residence. It is important to note that the principal residence exemption may change depending on how an individual utilizes their principal residence. If a part of the property is […]
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Underused Housing Tax Act
Part 2 of Bill C-8 is the Underused Housing Tax Act (“UHTA”), which is the first federal statute targeting vacant homes and foreign owners. The UHTA applies to residential real estate that is owned directly or indirectly, in whole or in part, by non-permanent resident, non-Canadian citizens. On December 15, 2021, Bill C-8 was introduced in the House of Commons. The UHTA seeks to implement a 1% tax—known as the Underused Housing Tax (“UHT”)—that targets residential property that is underused or vacant. Although Bill C-8 has not yet been enacted, once it is passed into law, the UHTA will retroactively come into force on January 1, 2022. Scope and Purpose of the UHTA Every owner of a residential property would be required to file an annual declaration with the Canada Revenue Agency for each residential property they own on or before April 30 of the following calendar year. The UHT applies to every person that is an owner of residential property in Canada as of December 31 of a calendar year. An owner is someone that is the legal owner of the property— that is, the person registered on the title. Owners include persons that (i) are life tenants under a life estate, (ii) are life lease holders, and (iii) have continuous possession of the land under a long-term lease. It should be noted that the UHT does not apply to “excluded owners” and to individuals who qualify for an exemption under the UHTA. * Exemptions to the UHTA The exemptions to the UHTA are extensive. Not all exemptions are included. Some are discussed below. Primary Place of Residence The UHT will not apply to a residential property that is the primary residence of the owner, the owner’s spouse or common-law partner, or the owner’s child. Qualifying Occupancy Exemption An owner’s interest in a residential property would be exempt if they meet at least 180 days of a qualifying occupancy period.The property needs to be occupied in periods of at least one month, but these months do not need to be consecutive. A qualifying occupant is an individual who: • deals at arm’s length with the owner or the owner’s spouse or common-law partner, with the occupancy occurring under a written agreement; • does not deal at arm’s length with either the owner or owner’s spouse or common-law partner and is given continuous occupancy under a written agreement at fair rent; • is the owner’s spouse, common-law partner, parent, or child, and is a Canadian citizen or permanent resident; • a prescribed individual. Note that there is an exclusionary rule to the qualifying occupancy exemption. The exemption does not apply if the owner or spouse, common-law partner, parent, or child of the owner is the only individual who has continuous occupancy of the residential unit and resides at another property for and equal or greater number of days than the number of days they reside at the residential property. Multiple Residential Properties If a person or their spouse or common-law partner are neither a Canadian citizens nor a permanent resident of Canada, but they own multiple residential properties, the primary place of residence exemption will be available only if certain elections are filed. Other Exemptions This is not an exhaustive list: […]
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