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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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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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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Toronto’s Short-Term Rental Regime
The following article is a summary of the City’s short-term rental laws. The new system allows short-term rentals in any owner’s or tenant’s primary house in residential and mixed-use zones, subject to several restrictions designed to balance several conflicting policy objectives, including the City’s worries about a lack of private rental housing. Low vacancy rates, along with busy tourist seasons, have resulted in large growth in short-term rentals in Toronto and other major urban regions. The development of websites like Airbnb and VRBO has made it simpler for owners and renters to interact and enter into private rental arrangements. With the aforementioned factors in mind, the City decided to create a regulatory framework controlling short-term rentals. The Short-Term Rental Regime The City’s short-term rental system consists of three components: (i) zoning by-laws, (ii) a licensing and registration scheme for short-term rental operators and corporations, and (iii) short-term rental operator taxation. Zoning By-Laws The short-term rental zoning bylaws only allow individuals or businesses to operate “short-term rentals” under certain conditions. A “short-term rental” is defined as all or part of a dwelling unit that is (i) utilized to offer sleeping accommodations for a rental period of no more than 28 days and (ii) the “principal home” of the person managing the rental. A “primary home” is a “dwelling unit owned or rented by an individual person, either alone or jointly with others, where the individual person is normally resident.” Both homeowners and tenants are authorized to rent out their primary house for a limited time. Subject to potentially unresolved issues concerning legal non-conforming uses, the requirement that a short-term rental unit be a “principal residence” is significant because it prohibits a person from purchasing or leasing a dwelling unit solely for the purpose of offering it for short-term rental accommodation year-round. It also makes it impossible for a person to have numerous listings on Airbnb or VRBO. If the rental is for the full home or up to three bedrooms within a primary dwelling, it is a “permitted use.” Short-term rentals are allowed in secondary suites if the secondary suite is the operator’s primary residence. A short-term rental operator may only rent out their full property for a total of 180 nights each year. Short-Term Rental Licensing and Registration Anyone who plans to promote or offer their primary house for short-term rental must register with the City of Toronto’s Municipal Licensing and Standards department and acquire a license to do so. Each license will be valid for one year and must be renewed within 90 days of the expiration date. To register a property for short-term rental usage, the operator must supply the City with some basic information, declare that the rental address is their primary residence, and preserve records of all short-term rental activities, which must be submitted to the City upon request. The operator must also offer emergency information to all visitors, include the phone number of a person who is accessible 24 hours a day, and pay a $50 yearly registration fee. Companies that provide short-term rentals, such as Airbnb and VRBO, are subject to extra regulations. A short-term […]
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Vacancy Tax in Toronto
The City of Toronto is planning to start taxing unoccupied houses in order to discourage real estate speculators from buying up homes and leaving them empty as locals struggle to find affordable accommodation. While the federal government has revealed plans to introduce a national unoccupied house tax, local administration has stated that both can coexist and that a federal tax would not prohibit the city from charging its inhabitants. The executive committee of Mayor John Tory has overwhelmingly endorsed a municipal staff recommendation to introduce a 1% empty house tax beginning Jan. 1, 2022. The plan was presented to council for approval and public discussions will follow. The vacancy house tax is similar to one imposed by Vancouver in 2018 in response to a housing crisis and low vacancy rates. The City of Toronto authorized the installation of the new tax on unoccupied Toronto properties on December 16, 2020. The new levy is projected to produce at least $55 million to $66 million in annual tax revenue. While further information on the tax development process will be released later in 2021, it is believed that Toronto’s vacant house tax will be modeled after Vancouver’s vacancy tax. The latter was enacted by the provincial government of British Columbia in 2016 and went into force in 2017. Vacancy Tax in British Columbia Certain unoccupied properties in the city of Vancouver are subject to a 1% – 1.25% tax on the assessed value of the property under British Columbia’s Vacancy Tax Bylaw No. 11674. Unpaid payments linked to the vacancy tax are subject to a 5% penalty. The vacancy tax in Vancouver applies to any taxable property as defined by the provincial bylaw. Taxable property is unoccupied residential property that is not exempt from taxes and is not exempt from the vacancy tax. Residential property is classified as class 1 property, which includes single-family homes, duplexes, multi-family homes, apartments, and condos. Vacant property is also defined as residential property that has been vacant for more than 180 days between January 1 and December 31 of the year (“Period”) or as otherwise determined by the rules. A property that is the occupier’s primary residence or is rented out for at least 30 days in a row will not be considered vacant. Uninhabitable properties that do not qualify for one of the specified exemptions are typically taxed. Since the vacancy tax went into force on January 1, 2017, all Vancouver homeowners have been obliged to submit a property tax statement each year. If the homeowner fails to submit a statement or makes a fraudulent declaration, the property is considered empty under the regulations and may be liable to the vacancy tax if the other conditions are met. Exemptions from Vacancy Tax There are exemptions from the vacancy tax. Homeowners who are absent from their property for more than 180 days owing to death, property improvements, hospitalization, or a court order are exempt from paying the vacancy tax under the Vancouver bylaw. Additional exemptions apply to some stratum units and property with a restricted legal use. Homeowners are also free from the vacancy tax if they […]
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