Changes to OBCA and Housing Taxes

Changes to Ontario Business Corporations Act (OBCA)

Changes to the Ontario Business Corporations Act took effect on January 1, 2023 which require privately held corporations in Ontario to maintain records regarding individuals with significant control. Companies are not required to submit the information, but must provide it if requested by law enforcement, tax, or other regulatory authorities. 

An individual possesses significant control over a company if they:

  • own, control, or direct:
    • 25% or more of the voting shares of the corporation, or
    • 25% or more of the fair market value of all outstanding shares of the corporation
  • have direct or indirect influence over the corporation without owning at least 25% of the shares, or
  • own or control a significant number of shares jointly with other people.

A group of related persons, which includes the individual, their spouse, their children, and other relatives living in the same house, are each considered to be an individual with significant control if they collectively own 25% or more of the company.

Corporations must maintain the following information in respect of each individual with significant control:

  • Name, date of birth and last known address.
  • Jurisdiction of residence for tax purposes.
  • Date on which significant control was acquired and ceased.
  • Description of significant control over the corporation, including a description of their shareholdings.
  • Description of the steps taken to keep this information up-to-date each year.

The above information should be updated at least once per year, or within 15 days of the corporation becoming aware of any changes.

Underused Housing Tax

The Underused Housing Tax took effect on January 1, 2022. This tax applies to vacant or underused housing in Canada. The tax is typically only payable by non-resident, non-Canadian owners. However, Canadian corporations, partnerships and trusts that own residential property in Canada may be required to submit an annual filing to apply for an exemption from the tax.

For the purposes of this tax, residential property includes detached houses (containing up to three dwelling units), semi-detached houses, townhouse or rowhouse units, residential condominium units, or similar units.

Excluded owners do not have any filing or payment obligations. These owners include individuals that are Canadian citizens or permanent residents. Public corporations, Canadian registered charities, and certain other taxpayers are excluded as well.

Affected owners are required to file an annual return by April 30 each year even if there is no tax payable. Affected owners include individuals that are not Canadian citizens or permanent residents, Canadian private corporations (including corporations that hold title to residential property but beneficial ownership remains with an individual), non-Canadian corporations, any person that owns residential property as a partner of a partnership, and individuals that are Canadian citizens or permanent residents that own residential property as a trustee of a trust.

For affected owners, a separate Underused Housing Tax return is required for each property that is owned on December 31. Failure to file a return by the deadline will result in a minimum penalty of $5,000 for individuals and $10,000 for corporations.

Canadian corporations, partnerships and trusts that are required to file a return will generally be exempt from the tax. The following exemptions can be claimed on the return:

  • Specified Canadian corporation: A corporation incorporated in Canada. On December 31, less than 10% of the voting rights and value of the corporation can be owned by individuals that are not Canadian citizens or permanent residents, foreign corporations, or a combination of the two.
  • Specified Canadian partnership: A partnership that only includes excluded owners as partners on December 31.
  • Specified Canadian trust: A trust that only includes excluded owners as beneficiaries of the trust on December 31.

Additional exemptions may apply for other affected owners, such as:

  • Property that is the primary place of residence for the owner, their spouse, or their child;
  • Property that was occupied for at least 180 days in the year by another individual, subject to certain criteria;
  • Certain vacation properties, and properties that are not suitable for year-round use;
  • Property that was uninhabitable for at least 120 consecutive days due to a renovation done without unreasonable delay; or
  • Property that was under construction and was not substantially completed before April of the calendar year, or it was substantially completed between January and March, offered for sale and never occupied by an individual.

Affected owners that are not eligible for an exemption will be subject to tax calculated as 1% of the greater of the assessed value for the year for property tax purposes and the most recent sale price.  Owners can elect to use the fair market value where a written appraisal is obtained to support the value.  You should review your property tax bill to verify ownership details and ensure that the proper reporting is completed.  Since the legislation is new additional information may become available in the coming weeks.

Please contact us if you believe you may be required to file an Underused Housing Tax return. We would be happy to help you assess your filing obligations and assist in preparing your return.

Toronto Vacant Home Tax

The City of Toronto implemented a Vacant Home Tax beginning in 2022. Unlike the federal Underused Housing Tax, the Vacant Home Tax may apply to all owners including Canadian residents.

All owners of residential property in the City of Toronto are required to submit a declaration no later than February 28, 2023 in respect of the occupancy status of the property regardless if there are taxes to pay. The declaration was originally due no later than February 2, 2023, but an extension was provided as this is the first year of the tax.

The Vacant Home Tax will apply to property that was deemed vacant during the year or if you fail to complete the declaration.  Generally, it will not apply to property that is occupied by the owner, a tenant or another permitted owner.

The tax is calculated as 1% of the assessed value of the property and is payable in three instalments on May 1, June 1, and July 1, 2023.

Your property tax bill will provide relevant details for this declaration, including the owner of the property and the assessment roll number required. Please ensure you submit your declaration by February 28 to avoid interest and penalties.

Please contact us if you would like to discuss any of the above further and we would be happy to assist you.

 

NOTE:  Please understand that any posts written in the past may not be reflective of the current applicable obligations, rights and benefits. 

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