Moore Canadian Overview

Q1 2024 Moore Canadian Overview

Moore Canadian Overview
As an independent member of Moore North America, we are proud to share the Moore Canadian Overview. This quarterly newsletter is a collaborative publication, created by Segal and our fellow Canadian member firms of Moore North America. Each edition offers a selection of articles covering a range of current topics designed to inspire conversation. We invite you to take advantage of this valuable resource.

Home buyer incentives

The federal government has provided multiple financial incentives to encourage builders to build more new homes to meet the demands of both homeowners and the rental market. This includes repurposing federal land to build new homes, removing the Goods and Services Tax (GST) on new rental housing construction and additional low‑cost financing for rental housing construction. The following are additional measures intended to make home ownership more affordable and long‑term rental more available.

Crackdown on non‑compliant short‑term rentals

One of the perceived barriers to affordable long‑term rental is the proliferation of short‑term rentals such as Airbnb and Vrbo. Short‑term rentals used to be limited to 1 or more rooms in a home that were rented out by the homeowner. Now it is common to see entire homes rented out on a short‑term basis, meaning these units are removed from rental housing inventory. Many municipalities have regulations prohibiting short‑term rentals (30 days or fewer) in other than the primary home of the owner, but these rules are not always enforced.

For example, Toronto’s regulations require registration of such properties and the collection of a 6% Municipal Accommodation Tax.

No more than 3 rooms can be rented, and records must be kept as to the number of nights they are rented and the price paid. It is also necessary to keep track of whether the entire home or individual rooms have been rented.

Similar regulations exist in other Ontario municipalities.

Under rules announced in the 2023 Fall Economic Statement, short term rentals that are non‑compliant with municipal restrictions will not be able to claim rental expenses. In today’s high interest rate environment, the inability to claim expenses such as mortgage interest may be a significant deterrent to some owners and cause them to reconsider the use of the property.

The following are federal and provincial measures to ensure first‑time home ownership is more affordable. Some will be familiar to you, but others may come as a surprise.

First-time home buyer incentives

When it comes to the first‑time home buyer incentives listed below, you need to confirm you qualify as a first‑time home buyer. In Ontario, a first‑time home buyer is someone who hasn’t owned a home previously here or anywhere else in the world. If you have received your first home as a gift or inheritance, the Ontario government will not consider you a first‑time home buyer.

The requirements are different for the various tax incentives, and it is necessary to review the rules carefully to ensure you qualify.

Ontario land transfer tax rebate

If you qualify as a first-time home buyer in Ontario, you could be eligible for the provincial land transfer tax rebate. The rebate is up to $4,000 for homes priced over $368,000. The land transfer tax is not applicable for homes priced below this value. This can make quite a difference when budgeting for your new home.

To qualify for the refund, you must:

  • Be at least 18 years old
  • Be a Canadian citizen or permanent resident of Canada
  • Live in the home you’re purchasing within 9 months
  • Apply within 18 months of registration

If you’re married, you’ll also need to take into account your partner’s property history because it could affect your ability to claim the refund. If your partner acquired a home individually while you’ve been married, then neither of you would be eligible for the tax refund. But, if your partner’s property was purchased or inherited before you got married, you could still be able to claim some of the refund.

First-time home purchase rebate (Toronto)

As a first-time home buyer, you could qualify for a rebate of up to $4,475 if you're purchasing a new-build or a residential resale property in Toronto. All of the same requirements for the Ontario land transfer tax rebate apply for this rebate. It is possible to qualify for both.

The Home Buyers’ Plan

The Home Buyers’ Plan (HBP) is a program offered by the Canadian government to help first‑time home buyers get into the market. If you’re eligible, you can withdraw up to $35,000 from your Registered Retirement Savings Plan (RRSP) towards the down payment on your first home. If you and someone else are buying a home together, you can withdraw from your individual RRSPs a combined $70,000. The withdrawal is tax‑free as long as it’s paid back within 15 years, or included in income the amount which should be repaid.

To qualify for the HBP, you must:

  • Be a first-time homebuyer
  • Be a resident of Canada
  • Use the home within a year of purchasing it or building it

A first-time home buyer for the purpose of the HBP is someone who has not lived in a home you or your partner had owned in the year of purchase and the 4 prior calendar years.

The First-Time Home Buyer Incentive

The First-Time Home Buyer Incentive has been discontinued. The deadline for new or updated submissions is midnight ET on March 21, 2024. Taxpayers who are able to submit the application by March 21, 2024 may be eligible for the incentive if closing date is 6 months from time of application approval (for existing homes) or 18 months from the time of application approval (for existing home). Applications received before the deadline will be processed promptly. No new approvals will be granted after March 31, 2024.

The First-Time Home Buyer Incentive is a shared equity program with the Canadian government and can help you if you're struggling to come up with a down payment. Eligible Canadians can apply for a loan worth either 5 or 10% of a home’s purchase price, but there’s a catch.

When you eventually pay back the loan, you’ll be required to pay the equivalent of 5 or 10% of the property’s then current value. While it’s a great tool to help Canadians get into the market, the downside is you don’t know how much your home’s value will be in the future, and you will be paying the government a percentage back ⁠–⁠ not a set amount. Let’s say you purchased a home for $600,000 and borrowed 5% of the value for the down payment, which would be $30,000. You would owe the government 5% of the final sale price. So, if you held on to the home for 8 years and sold it for $950,000, you would have to pay the government back $47,500 (5% of $950,000).

First-Time Home Buyer’s Tax Credit (HBTC)

The tax credit was introduced as part of Canada’s Economic Action Plan 2009 to assist Canadians in purchasing their first home. It was created to help recover closing costs like legal expenses, inspections and land transfer taxes that can add up for first-time home buyers. The rebate amount was doubled to $1,500 in 2022 (i.e., 15% of $10,000). The credit may be split between spouses.

To qualify for the home buyers’ amount, you must:

  • Buy an eligible home
  • Include it with your personal tax return under line 31270 of your schedule 1
  • Be a resident of Canada
  • Intend to live in the home within 1 year of purchase

A first-time home buyer for the purpose of the HBTC is someone who has not lived in a home you or your partner had owned in the year of purchase and the 4 prior calendar years. You can qualify for both the HBP and the HBTC for the same home as long as you qualify under both sets of criteria.

GST/HST new housing rebate

The GST/HST new housing rebate is available to Canadians who buy a newly built home, significantly renovate an existing home or rebuild a home that was destroyed. If you qualify, the rebate allows you to recover some of the Goods and Services Tax (GST) or the federal part of the Harmonized Sales Tax (HST) you paid toward these purchases.

In addition to the various better‑known incentives described, there are other local homeowner programs offering financial assistance and support to encourage first‑time home buyers to settle in the area. Many of these programs have generous repayment terms.

Home affordability is a major issue for most new home buyers. Location of your new home may impact the incentives available, and the ultimate cost of the home. The attractiveness of the different incentives may vary depending on whether you prefer a cash rebate (generally a lower amount) instead of mortgage assistance. The cost of the home is substantially lowered if you qualify for more than one incentive. It is important to weigh these options when you decide on the affordabililty of a home. Don’t miss any incentives which you may be eligible for. Many of the programs have criteria that are independent of each other and you may be eligible for more than one.

Don't miss any incentives

Canadian transfer pricing compliance

Canadian contemporaneous documentation – Are you ready?

Canadian transfer pricing compliance
  • Are you a multinational group with international operations and intercompany cross‑border transactions?
  • Do you transact with your related entities on a regular basis?
  • Do you have a transfer pricing policy and pricing basis that is up to date and reflective of your business realities?
  • Has the pricing basis adopted on intercompany transactions been documented, and is it compliant with Canadian and international transfer pricing rules?

If you answer yes to any of these questions, then keep reading.

As year-end tax and accounting obligations approach, it is essential for multinational groups with international intercompany transactions to prepare contemporaneous transfer pricing documentation.

The Canada Income Tax Act (“the Act”) requires taxpayers to maintain specific documentation showing they have made reasonable efforts to determine and use arm’s length transfer prices or allocations. Assuming reasonable efforts to determine and use arm’s length prices were made, any adjustments by the Canada Revenue Agency (“the CRA”) will not be subject to penalties.

This is especially relevant for multinational groups with Canadian subsidiaries or Canadian‑headquartered multinational groups with reportable intercompany transactions of $1 million CDN or more in a financial year. Transaction amounts are based on a gross basis (not net of income and expenses), reportable on Form T106 (related party disclosure filed with annual corporate tax return).

While the Act does not specifically define contemporaneous, the CRA’s administrative guidance clarifies its position as:

“In light of the obligations set out in subsection 247(4), taxpayers will generally produce or obtain the required documentation at the time the transaction is entered into.”

and

“Taxpayers may, after a transaction has occurred but before the filing‑due date, recognize that the transfer price recorded for that particular transaction does not represent an arm’s length price.”

At a minimum, contemporaneous documentation must be completed within six months after the year‑end. Where taxpayers have such contemporaneous documentation prepared, they may respond “YES” to Question 7 on Form T106 (related party disclosure, shown below) which forms part of the Canadian T2 (annual corporate tax return).



Select Penalties for non‑compliance

Under section 247, if the terms or conditions of controlled transactions differ from those that would have been made between persons dealing at arm’s length, the CRA may adjust so the amounts paid reflect those that would have been paid between arm’s length persons. As such, the Act contains a penalty provision under subsection 247(3).

Subsection 247(3) of the Act imposes a penalty equal to 10% of the net result of certain adjustments calculated as follows:

  • The total of the transfer pricing income and capital adjustments (upward adjustments, whether there are reasonable efforts or not);

  • less:

  • The total of transfer pricing income and capital adjustments for which a taxpayer has made reasonable efforts to determine and use arm’s length transfer prices or allocations (upward adjustments for which there are reasonable efforts); and
  • The total of transfer pricing income and capital setoff adjustments for which a taxpayer has made reasonable efforts to determine and use arm’s length transfer prices or allocations (downward adjustments for which there are reasonable efforts).

If the documentation described in subsection 247(4) is not prepared, and/or obtained by the documentation‑due date, the taxpayer is deemed not to have made reasonable efforts for the purposes of the penalty in accordance with subsection 247(3) of the Act, therefore resulting in penalties should a transfer pricing adjustment be made by the CRA.


Segal’s Transfer Pricing team

Led by Partner & Practice Leader Avinash S. Tukrel, our team assists multinational groups with all aspects of the transfer pricing lifecycle, including policy and planning, implementation, compliance and documentation, as well as local country tax authority audit support.

If you have any questions, simply contact Avinash for a complimentary preliminary discussion to determine your next steps. Alternatively, you can contact your Segal advisor who will be happy to connect you with our Transfer Pricing team.

Proactively compliant, eliminating uncertainty

For more information:

Avinash S. Tukrel
Partner & Practice Leader – Transfer Pricing
416.774.2446

ATukrel@segalgcse.com

Vacant Home Tax (VHT) update for Toronto properties

In 2023, Toronto homeowners faced two sets of reporting requirements related to properties that may not have been fully occupied as residences in 2022:

  1. Reporting under the federal Underused Housing Tax (UHT)
  2. The city of Toronto’s Vacant Home Tax (VHT) Declaration

The two reporting requirements have much in common, and it’s understandable if some taxpayers are unclear about the difference between the two. In both cases, reporting is based on the previous year’s occupancy status (i.e., the 2023 filing was based on 2022 occupancy status).

There may be substantial penalties for failing to file one or both of the reports. The UHT penalty for failure to report is a minimum of $5,000 for individuals and $10,000 for other property owners. A property owner who fails to file the declaration for VHT is deemed to own a vacant home and will be assessed the VHT at 1% of the assessed value of the property, which is subject to an appeal process to have the VHT reversed.

Over the last few months, the focus had been on the Underused Housing Tax (UHT) and its 2022 filing deadline, which has been extended a number of times, most recently to April 30, 2024. It may be easy to forget the VHT declaration is about to be due. The online portal for 2024 is already live and can be used to make declarations for 2023 vacancy status.

The overview that follows will only highlight the main changes made to the VHT since last filing season.

To make the annual declaration, the owner will need a 21‑digit assessment roll number and a customer number, which can be found on your property tax bill or property tax account statement. A property that is occupied for longer than six months in the previous year by the owner or a tenant will be exempt from tax. For the upcoming 2024 filing season, a tenant includes anyone who leased the property to operate a business for a term of greater than 30 days and tenants who occupy a property as a personal residence. There are also specific exemptions to the tax, including homeowners in long‑term care, properties undergoing repairs or renovations or a vacancy caused by the death of the owner.

The requirement to satisfy the exemption for a property undergoing repairs and renovations has been changed from “obtaining an opinion from the Chief Building Official and Executive Director, Toronto Building” to a requirement that repairs or renovations are being actively carried out without unnecessary delay.

Each residential property owner must file a VHT declaration. This is different from the UHT, which exempts certain individuals (such as Canadian residents and citizens) from filing the return.

While multiple owners of one property may all have UHT filing obligations, only one VHT declaration is required for each property. It should also be noted that no VHT declaration is required if:

  • the property is not yet assessed
  • the property is classed as multi‑residential, commercial or industrial
  • the property is classified by MPAC as vacant land, parking space or a condominium locker

A new exemption is provided for newly built housing inventory that is vacant, which applies for up to two consecutive taxation years.

Owners of properties subject to the tax will be issued a Vacant Home Tax Notice at the end of March, and payment will now be due in three instalments on May 15, June 17 and July 15, 2024, rather than the earlier deadlines, which fell at the beginning of those months.

For properties in 2022 and 2023, a VHT of 1% of the Current Value Assessment (CVA) will be levied on all Toronto residences that are declared, deemed or determined to be vacant for more than six months during the previous year. For example, if the CVA of your property is $1,000,000, the tax amount billed would be $10,000 (1% of $1,000,000). To date, the UHT rate remains 1%.

For vacancies in 2024 and future taxation years, a tax of 3% of the CVA will be levied on all Toronto residences that are declared, deemed or determined to be vacant for more than six months during the previous year. For example, if the CVA of your property is $1,000,000, the tax amount billed would be $30,000 (3% of $1,000,000).

The tax is based on the property’s occupancy status and CVA for the previous year. For example, if the home is vacant in 2023, the tax will be calculated using the 2023 CVA and will become payable in 2024. If a declaration is not submitted by the deadline, the property will be deemed vacant, and it will be subject to the Vacant Home Tax. As a result, it is costly to miss the filing deadline, which has been changed from the second business day of February to the last day of February.

Effective Jan. 1, 2024, a fee of $21.24 will be charged for failing to submit a declaration of occupancy status by the declaration deadline. This fee is intended to defray the costs of administering the declaration program.

The City of Toronto has collected approximately $54 million in VHT on 2,161 declared units and 17,437 deemed vacant units. However, the numbers are expected to be lower once all the appeals in progress are resolved. Even if the assessed VHT is ultimately reversed, the appeal process is stressful and costly, making it a wise idea to file the relatively simple declaration on time.

Putting tax in perspective

Segal names six new Partners

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Positioning itself for continued growth and expansion in 2024, Segal is pleased to announce the promotion to Partner of six distinguished individuals from across the firm’s multidisciplinary advisory team, effective Jan. 1, 2024.

This newly appointed group of Partners includes: Natalia Glavina, Rishma Jessa, Stephen Lanni, Carlo Rodriguez, Matthew Schneider and Avinash S. Tukrel. Each of these highly regarded professionals brings not only their unique scope of expertise and experience to our Partner group, but also a shared commitment to our firm’s mission and values.

"Within their specific practice areas ⁠–⁠ which span virtually every aspect of our advisory services ⁠–⁠ Natalia, Rishma, Stephen, Carlo, Matthew and Avinash have all clearly proven their capabilities," says Segal Managing Partner Dan Natale. "As Partners, they represent our firm’s deep commitment to fostering the next generation of leaders. We are excited they will now have the opportunity to make an even greater impact on our growth trajectory, and most importantly, the success of our clients."

These new appointments are a direct reflection of the impressive evolution our firm has seen, further strengthening our position as a leading provider of assurance, tax and advisory solutions. Ultimately, this new group of leaders reinforces our firm’s bright outlook for the future, as well as our ability to seize new and emerging opportunities.

Rising to new heights

For more information:

Lavanya Sarathchandran
Marketing and Communications Manager
416.798.6929
LSarathchandran@segalgcse.com