Development Charges Season

Post by: Craig Robson

Many municipalities in Ontario are currently undergoing a review of their development charges bylaws for 2014 implementation.

Anyone who is involved in real estate development should be paying careful attention to these reviews.

It is not unusual for a developer to determine that provisions in a development charges bylaw are not as favourable to that developer as they could or ought to have been.  For example, a few missing words in a definition within the bylaw can defeat a right to claim certain exemptions or credits.

Now is the time to be reviewing any definitions in a proposed development charges bylaw which may affect your development and to try to have those definitions “tweaked” as necessary to accommodate the developments you may be undertaking during the life of the bylaw (usually five years).

If nothing else, you should be keeping an eye on the proposed amounts of the development charges so that if the charges are increasing you can attempt to take out any requisite building permits to fix the amount of the charges at the old rates prior to the implementation of the new rates.

In addition, if there are any capital works which your proposed development may need in order to proceed, such as for example, a road or trunk sewer, a careful review of the background study relevant to the proposed bylaw should be undertaken.

You should attempt to ensure that all necessary capital works, to the extent any of them could be considered to be “growth related”, are:

  • shown as included in the capital works to be completed within the background study relating to the new bylaw; and,
  • that such capital works are scheduled to be completed within a timeframe which will accommodate your proposed development.

Otherwise, you could be faced with the prospect of having to either delay your development or, if the municipality will allow you to do so, pay the cost of the capital works without any guarantee of reimbursement.  Even if the municipality is inclined to reimburse you for the cost of any capital works that you undertake on its behalf, there may be difficulty in completing such arrangements if the proposed capital works are not contemplated by the background study that gives rise to the final development charge amounts in the bylaw.

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HST REBATES ON NEW HOUSING (INCLUDING REBATES FOR RENTALS)

Post by: Khiam Nong

Builders who sell new or substantially renovated housing need to be aware of the HST New Housing Rebate (“NHR”).  The NHR can be assigned to a builder from home purchasers (“Purchasers”) on the unit/home sale closing.

Builders and Purchasers of new homes also need to be aware of the fact there is a rebate of HST available to the landlord of a new property (including a single home or residential condominium unit) if the first occupant of the property is a tenant.  This rebate is referred to as the New Residential Rental Property Rebate (“NRRP Rebate”).

Purchasers who rent out a new home so that the first occupant of the new home is a tenant are entitled to the NRRP Rebate but cannot obtain the NRRP Rebate from the builder.  Such Purchasers must apply for the NRRP Rebate directly after closing.  To find out how and where to file the NRRP Rebate application, see page 31 of the Canada Revenue Agency (“CRA”) publication found here.

In markets with the potential for Purchasers to acquire property for investment purposes, builders should be aware of the existence of the NRRP Rebate so they can advise their Purchasers of the existence of the rebate.  The obligation for a Purchaser to pay the full 13% HST without being aware of the NRRP Rebate can discourage a Purchaser from completing the purchase.

Further, awareness of the NRRP Rebate may also deter misrepresentation by Purchasers to the CRA.

Of late, we have noticed that, in order to avoid being responsible to their builder for lost NHR, some Purchasers have been dishonest about their intentions to rent out a property and misrepresented that they intend to occupy the property as their primary place of residence.

If Purchasers are made aware that they can obtain the NRRP Rebate on new homes that they lease out to tenants, we suspect some of this dishonesty will be dissuaded.

New Housing Rebate

The NHR allows Purchasers to recover some of the federal portion of the HST, which is 5% in Ontario.  For homes with a base price (exclusive of any HST or rebates) up to $350,000, Purchasers may recover a rebate of 36% of the 5% federal portion.  The allowable rebate declines on a sliding scale when the purchase price is between $350,000 to $450,000.  If the base price is or exceeds $450,000, the federal portion of the NHR is not available.

Regarding the remaining 8% of the HST, which is the provincial portion, Purchasers may recover 75% of the 8% provincial portion up to a maximum of $24,000.  Unlike the federal portion, the amount of the provincial portion of the NHR does not slowly decline once the purchase price reaches $350,000.00.  The provincial portion of the NHR simply does not apply to any purchase price in excess of $400,00.00, thereby limiting the amount of the provincial portion of the NHR to $24,000.00.

For the purposes of the NHR, the term “builder” generally includes a person in the business of constructing or substantially renovating houses for sale, but may also include:

(i)                 a manufacturer or vendor of a new mobile home or floating home;

(ii)               a person who buys a previously unoccupied new house for resale;

(iii)             a person who acquires an interest in a house while the house is under construction or substantial renovation and completes or engages another person to complete the construction or substantial renovation; or

(iv)              a person who has converted a non-residential property into a house without substantially renovating the property. [1]

A “builder” for the purposes of the rebate acquires, builds or substantially renovates housing (or hires someone else to do so) as its trade.

An individual who buys, builds or renovates a house to use as his or her primary residence does not fit the definition of builder, however, such an individual is still entitled to the NHR if he or she meets all of the usual criteria.

Purchasers may assign the NHR to their builder.  The builder may apply for the rebate on the Purchasers’ behalf.

A builder may pay the total amount of Purchasers’ NHR directly to them or credit that amount on the purchase price of the house.  It is highly unusual to pay the NHR directly to Purchasers.

A builder who chooses to credit Purchasers with the amount of the NHR must send in a fully completed Form GST190 and all applicable provincial rebate schedules.

The following is a list of additional conditions Purchasers must meet to qualify for the NHR:

(a)               the Purchasers bought a new or substantially renovated house from a builder and HST is due on closing;

(b)               the builder sold the Purchasers the house and related land on which the house is located under the same written agreement of purchase and sale;

(c)                when the Purchasers signed the agreement of purchase and sale, it was intended to be the primary place of residence for the Purchasers or their relations;

(d)               ownership of the house is transferred to the Purchasers after construction or substantial renovation is completed;

(e)               no one occupied the house before possession being given to the Purchasers; and

(f)                 the Purchasers or their relations are actually the first occupants of the house after construction or substantial renovation.

One of the main criterion for eligibility for the NHR is that Purchasers, or their relations (meaning immediate family members related by blood, marriage, common-law partnership or adoption within the meaning of the Income Tax Act), must use the house/unit as their primary place of residence.  The factors the CRA considers when determining whether a house is an individual’s primary place of residence include:

○                    whether the individual considers the house as their main residence;

○                    the time the individual has lived in the house; and

○                    the designation of that address on personal and public records.[2]

Purchasers who fail to meet all eligibility requirements should not be entitled to the NHR and if the NHR is obtained, can be required to repay the rebate.

New Residential Rental Property Rebate

The NRRP Rebate is obtained by Purchasers making an application as noted above.  The NRRP Rebate cannot be credited to the Purchasers on closing by the builder.

The application for the NRRP Rebate must be filed within two (2) years after the house purchase closes.

The amount of NHR is calculated on the same basis as the NRRP Rebate.  Generally the rules for eligibility are the same as those considered in respect of the NHR.

It is important to note that Purchasers will have to repay the NRRP Rebate if they should sell their home within one (1) year after it is first occupied as a primary place of residence after construction, unless the home is sold or leased to an individual who will occupy the home as their primary place of residence.

The foregoing is a summary of the HST rebates available when selling or buying a new or substantially renovated home/unit.  For more detailed information on the NHR and the NRRP Rebate, see the following CRA publications or talk to your tax advisor.

http://www.cra-arc.gc.ca/E/pub/gp/rc4028/rc4028-12e.pdf

http://www.cra-arc.gc.ca/E/pub/gp/rc4231/rc4231-12e.pdf



[1] RC4028 GST/HST New Housing Rebate, page 6, www.cra.gc.ca, February 26, 2013.

[2] Ibid.

Don’t Wait Too Long – Tarion, Bulletin 19R and New Condominiums

Post by: Craig Robson

We received a call recently from a prospective client who was interested in developing a condominium project.  The conversation went something like this:

Caller: – “We are looking at doing a 6 storey apartment condominium.”

Lawyer – “What stage are you at?”

Caller – “4th floor is being worked on now.”

Lawyer –“Are you looking to sell the units or rent them?”

Caller  “Rent.”

Lawyer – “Good.”

Our response was based on the fact that if the caller was intending to sell new residential units out of the project, the project would be subject to the Ontario New Home Warranties Plan Act (“ONHWPA”) jurisdiction.  The entity responsible for administering the ONHWPA is the Tarion Warranty Corporation (“Tarion”).

If the caller was planning on selling new residential units, the project would then likely be subject to Bulletin19R “Condominium Projects: Design and Field Review Reporting” (“19R”).  19R came into effect on July 1, 2010 (replacing a similar long standing bulletin).

19R applies to vendors and builders of proposed condominiums that have both Part 9 and Part 3 Ontario Building Code (“OBC”) construction requirements and proposed condominiums that have only Part 3 OBC construction requirements.

For most of us who are not schooled in interpreting the OBC it is not always clear when 19R will apply.  Its applicability can sometimes be a surprise.  The basic assumption by some is that it only applies to “high rises”.  The true test of applicability is what part or parts of the OBC apply.

The question of what part(s) of the OBC apply to a proposed residential project should be put to the project engineer or architect at the outset of any such project if there is any thought of selling units.  This question should be posed well before any construction gets underway if there is any chance of the project being subject to ONHWPA.  Tarion asks the question in its application form but we have seen those applications prepared from time to time without careful consideration (called guessing) of what part of the OBC applies.

For the caller referred to above, she would have had a major issue if her intention was to sell residential units out of the project.

Her first issue would be that she should have enrolled the project in ONHWPA before construction started.  That in itself is an exercise of some length.

The bigger problem is with respect to 19R.  19R requires a lot of paperwork, submissions and professional reviews starting before and during all aspects of construction.  The caller in the above example may have simply been unable to comply with 19R because her project was too far along in the construction process to be able to comply with 19R’s preconstruction and submission requirements that are required before and in the early stages of construction.

19R adds a lot of red tape and cost to a project but cannot be ignored with respect to projects to which it applies.  Not being able to comply with 19R requirements may preclude a project from being brought into ONHWPA registration/enrolment.  If a project does not have this registration/enrolment, the builder is not allowed to sell the new previously unoccupied residential units in the project.

The Take Away

  1.  If there is any chance that there will be sales of new residential units in a new project, contact Tarion immediately and at the very least find out what the process is to comply with their requirements.
  2. If sales of new residential units are intended:
    • get the process underway with Tarion well in advance of construction commencement.  It can take a while; and
    • determine with certainty whether 19R applies well before any construction starts.  If 19R applies, make sure all relevant members of your project team know what is required of them – and then make sure they do it.  A qualified member of your project team should be charged with coordinating all of the 19R requirements.

Home Builders: 7 Tips for Fostering Good Neighbourly Relations

Post by: Craig Robson

Ontario home builders who are venturing into built up areas to develop homes or condominiums have good reason to be neighbourly.

In built up areas, it often happens that neighbours develop a keen and sometimes vocal interest in a project.  They may, with some justification, feel that they have a vested interest in the development, given that they will look at the completed project every day, be subject to some level of construction, traffic, shadows, noise, and other issues that might be caused by the project.

The range of concerns may range from the wholly reasonable to the absurd.  Even if concerns are not well founded or are based on false information, the risk to the home builder is that the neighbours mount a campaign intended to either change, delay, or block the proposed development.

A home builder’s best defence against such opposition is to consult with neighbours from the outset and respond to their concerns.  Specifically, home builders should:

  1. Provide information about the project to neighbours from early on.  Communicate how the project has been designed to integrate with the existing neighbourhood and limit the potential for land use conflicts or other adverse impacts.  Also give them as much information as possible about what is proposed for construction and the expected timeline;
  2. Consider convening one or more neighbourhood information meetings where the home builder can present the project in the best light;
  3. Consider setting up a website that is updated as new information about the project comes available. This should only be done where the home builder is prepared to keep the information current.  The website can also be a spot for soliciting neighbours’ comments about the project, either by e-mail or through a “Comments” form;
  4. Respond to any misinformation about the project which sometimes develops due to rumour or speculation.  If the project is a well-designed project with demonstrable community benefits, then there is every reason to keep the neighbours well-informed;
  5. For a mixed-use project, consider asking neighbours what commercial uses they would like to see in the neighbourhood.  This could reveal an unexpected need for commercial components that would otherwise be missed;
  6. Provide information about why the project is a good project for the neighbourhood and the wider community.  It is not enough that a project is expected to be a profitable one for the home builder.  Home builders should know and be able to summarize the key community benefits that will flow from individual projects; and
  7. Adjust the project to respond to legitimate concerns.  Municipal officials will often appreciate anything a builder can do to defuse a potentially tense neighbourhood situation.

Doing the above and providing information and a forum for feedback from neighbours may allow for a smoother and faster process despite the initial time it takes.  It also allows the home builder to get a better idea of the arguments it may face and provides time to build a response or defence to those arguments.

http://www.rcllp.ca