Capital Expenditures (AGI)

Caselaw.Ninja, Riverview Group Publishing 2021 ©
Date Retrieved:	2024-11-24
CLNP Page ID:	2021
Page Categories:	[AGI Applications]
Citation:	Capital Expenditures (AGI), CLNP 2021, <https://rvt.link/1v>, retrieved on 2024-11-24
Editor:	MKent
Last Updated:	2022/11/30

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Residential Tenancies Act, 2006, S.O. 2006, c. 17

126 (1) A landlord may apply to the Board for an order permitting the rent charged to be increased by more than the guideline for any or all of the rental units in a residential complex in any or all of the following cases:

1. An extraordinary increase in the cost for municipal taxes and charges for the residential complex or any building in which the rental units are located.

2. Eligible capital expenditures incurred respecting the residential complex or one or more of the rental units in it.

3. Operating costs related to security services provided in respect of the residential complex or any building in which the rental units are located by persons not employed by the landlord. 2006, c. 17, s. 126 (1); 2017, c. 13, s. 22 (1).

(2) In this section,

“extraordinary increase” means extraordinary increase as defined by or determined in accordance with the regulations. 2006, c. 17, s. 126 (2).

...

(7) Subject to subsections (8) and (9) and except under the prescribed circumstances, a capital expenditure is an eligible capital expenditure for the purposes of this section if,

(a) it is necessary to protect or restore the physical integrity of the residential complex or part of it;

(b) it is necessary to comply with subsection 20 (1) or clauses 161 (a) to (e);

(c) it is necessary to maintain the provision of a plumbing, heating, mechanical, electrical, ventilation or air conditioning system;

(d) it provides access for persons with disabilities;

(e) it promotes energy or water conservation; or

(f) it maintains or improves the security of the residential complex or part of it. 2006, c. 17, s. 126 (7); 2017, c. 13, s. 22 (3).

(8) A capital expenditure to replace a system or thing is not an eligible capital expenditure for the purposes of this section if the system or thing that was replaced did not require major repair or replacement, unless the replacement of the system or thing promotes,

(a) access for persons with disabilities;

(b) energy or water conservation; or

(c) security of the residential complex or part of it. 2006, c. 17, s. 126 (8).

(9) A capital expenditure is not an eligible capital expenditure with respect to a rental unit for the purposes of this section if a new tenant entered into a new tenancy agreement in respect of the rental unit and the new tenancy agreement took effect after the capital expenditure was completed. 2006, c. 17, s. 126 (9).

O. Reg. 516/06: GENERAL

18. (1) In the Act and in this Part,

“capital expenditure” means an expenditure for an extraordinary or significant renovation, repair, replacement or new addition, the expected benefit of which extends for at least five years including,

(a) an expenditure with respect to a leased asset if the lease qualifies as determined under subsection (2), and

(b) an expenditure that the landlord is required to pay on work undertaken by a municipality, local board or public utility, other than work undertaken because of the landlord’s failure to do it,

but does not include,

(c) routine or ordinary work undertaken on a regular basis or undertaken to maintain a capital asset in its operating state, such as cleaning and janitorial services, elevator servicing, general building maintenance, grounds-keeping and appliance repairs, or

(d) work that is substantially cosmetic in nature or is designed to enhance the level of prestige or luxury offered by a unit or residential complex; (“dépense en immobilisations”)

“incurred” means, in relation to a capital expenditure,

(a) the payment in full of the amount of the capital expenditure, other than a holdback withheld under the Construction Lien Act,

(b) if the expenditure relates to a lease, the assumption, when the lease commences, of the obligations under it, or

(c) if the expenditure relates to work undertaken by a municipality, local board or public utility, when the work is completed; (“engager”)

“physical integrity” means the integrity of all parts of a structure, including the foundation, that support loads or that provide a weather envelope and includes, without restricting the generality of the foregoing, the integrity of,

(a) the roof, exterior walls, exterior doors and exterior windows,

(b) elements contiguous with the structure that contribute to the weather envelope of the structure, and

(c) columns, walls and floors that support loads. (“intégrité matérielle”) O. Reg. 516/06, s. 18 (1).

(2) For the purposes of the definition of “capital expenditure” in subsection (1), a lease qualifies if substantially all the risks and benefits associated with the leased asset are passed to the lessee and, when the lease commences, any one or more of the following is satisfied:

1. The lease provides that the ownership of the asset passes to the lessee at or before the end of the term of the lease.

2. The lease provides that the lessee has an option to purchase the asset at the end of the term of the lease at a price that is less than what the market value of the asset will be at that time.

3. The term of the lease is at least 75 per cent of the useful life of the asset, as determined in accordance with section 27 but without regard to any part of section 27 that prevents the useful life from being determined to be less than 10 years.

4. The net present value of the minimum lease payments is at least 90 per cent of the asset’s fair market value at the commencement of the lease where the net present value is determined using the interest rate determined under section 20. O. Reg. 516/06, s. 18 (2).

(...)

Determination of capital expenditures, operating costs
24. (1) In determining the amount of any capital expenditures or the amount of operating costs in an application under section 126 of the Act, the Board shall,

(a) include, for an application filed on or after July 1, 2010, any provincial sales tax and harmonized sales tax paid by the landlord in respect of the capital expenditures or operating costs;

(a.1) Revoked: O. Reg. 562/17, s. 5 (2).

(b) exclude any penalties, interest or other similar charges for late payment of any amount paid by the landlord in respect of the capital expenditures or operating costs;

(c) exclude any amount that has already been included in calculating the amount of a capital expenditure or operating cost in the same application or for which the landlord has obtained relief in a previous order under the Act or under the Tenant Protection Act, 1997; and

(d) subtract the amount of all grants, other forms of financial assistance, rebates and refunds received by the landlord that effectively reduce the operating costs. O. Reg. 516/06, s. 24 (1); O. Reg. 256/10, s. 4 (1); O. Reg. 122/17, s. 1 (1); O. Reg. 562/17, s. 5.

(1.1) In determining the amount of any capital expenditures or the amount of operating costs in an application under section 126 of the Act that is filed before July 1, 2010, the Board shall include the goods and services tax and provincial sales tax paid by the landlord in respect of the capital expenditures or operating costs. O. Reg. 256/10, s. 4 (2).

(1.2) Revoked: O. Reg. 562/17, s. 5 (3).

(2) If a residential complex forms part of a larger project, the operating costs for the project and the amount of capital expenditures which benefit both the residential complex and the other parts of the project shall be allocated between the residential complex and the other parts of the project in accordance with one or more of the following factors:

1. The area of each part of the project.

2. The market value of each part of the project.

3. The revenue generated by each part of the project. O. Reg. 516/06, s. 24 (2).

(3) If the allocation of operating costs and capital expenditures in accordance with subsection (2) would be unreasonable considering how much of the costs and expenditures are attributable to each part of the project, the operating costs and capital expenditures shall be allocated among the parts of the project in reasonable proportions according to how much of the costs and expenditures are attributable to each part of the project. O. Reg. 516/06, s. 24 (3).

(4) In this section,

“harmonized sales tax” means any tax imposed under Part IX of the Excise Tax Act (Canada). (“taxe de vente harmonisée”) O. Reg. 256/10, s. 4 (2); O. Reg. 122/17, s. 1 (3); O. Reg. 562/17, s. 5 (4).

Non-arm’s length transaction
25. (1) If the landlord incurs a cost arising out of a transaction that is not an arm’s length transaction, the Board shall consider only that part of the landlord’s cost that is less than or equal to the costs that would arise from a similar market transaction. O. Reg. 516/06, s. 25 (1).

(2) In this section,

“arm’s length” means the persons involved are not related persons; (“sans lien de dépendance”)

“control” means direct or indirect ownership or control either alone or with a related person of,

(a) more than 50 per cent of the issued share capital of a corporation having full voting rights under all circumstances, or

(b) issued and outstanding share capital of a corporation in an amount that permits or may permit the person to direct the management and policies of the corporation; (“contrôle”)

“family”, in relation to a person, means,

(a) the person’s spouse,

(b) the parents or other ancestors or the children or other descendants of the person or the person’s spouse,

(c) the brothers and sisters of the person or the person’s spouse, and the children and other descendants of those brothers and sisters,

(d) the aunts and uncles of the person and the person’s spouse and the children and other descendants of those aunts and uncles,

(e) the spouses of the person’s sons and daughters; (“famille”)

“related person”, where used to indicate a relationship with any person, includes,

(a) a member of the family of such person,

(b) an employer or employee of such person,

(c) a partner of such person,

(d) a trust or estate in which such person has a beneficial interest,

(e) a trust or estate in which such person serves as a trustee or in a similar capacity,

(f) a trust or estate in which persons related to such person, as otherwise determined under this definition, have a beneficial interest,

(g) a corporation controlled by such person,

(h) a corporation controlled by such person and persons related to such person, or

(i) a corporation controlled by a person related to such person; (“personne liée”)

“similar market transaction” means an arm’s length transaction that occurs or may reasonably be expected to occur under the same or comparable terms and conditions and in the same general geographic location. (“opération semblable sur le marché”) O. Reg. 516/06, s. 25 (2).

(3) In this section, one corporation is related to another corporation if,

(a) one of the corporations is controlled by the other corporation;

(b) both of the corporations are controlled by the same person or group of related persons each member of which is related to every other member of the group;

(c) each of the corporations is controlled by one person and the person who controls one of the corporations and the person who controls the other corporation are related persons;

(d) one of the corporations is controlled by one person and that person is related to any member of a group of related persons that controls the other corporation;

(e) one of the corporations is controlled by one person and that person is related to each member of an unrelated group that controls the other corporation;

(f) any member of a group of related persons that controls one of the corporations is related to each member of an unrelated group that controls the other corporation; or

(g) each member of an unrelated group that controls one of the corporations is a related person to at least one member of an unrelated group that controls the other corporation. O. Reg. 516/06, s. 25 (3).

Findings related to capital expenditures
26. (1) The rules set out in this section apply to the Board in making findings relating to capital expenditures. O. Reg. 516/06, s. 26 (1).

(2) A rent increase shall not be ordered in respect of a capital expenditure unless the work was completed during the 18-month period ending 90 days before the effective date of the first intended rent increase referred to in the application. O. Reg. 516/06, s. 26 (2).

(3) The value of the landlord’s own labour in carrying out the work involved in the capital expenditure is equal to the amount of time spent multiplied by a rate of pay that is reasonable given the landlord’s experience and skill in the type of work done but,

(a) if the amount of time spent exceeds the amount of time that would be reasonable given the landlord’s experience and skill, the latter amount of time shall be used in the calculation of the value of the landlord’s own labour;

(b) only that part of the value of the landlord’s own labour that does not exceed the amount a person in the business of doing such work would charge shall be considered; and

(c) the value of the landlord’s own labour does not include any amount with respect to the management and administration of the work involved in the capital expenditure. O. Reg. 516/06, s. 26 (3).

(4) The cost of a leased asset is the fair market value of the leased asset at the commencement of the lease. O. Reg. 516/06, s. 26 (4).

(5) The amount of a capital expenditure is calculated as follows:

1. Add the following amounts:

i. The purchase prices.

ii. The cost of any leased assets.

iii. The installation, renovation and construction costs.

iv. The value of the landlord’s own labour as determined under subsection (3).

2. Subtract from the amount determined under paragraph 1 any grant or other assistance from any level of government and any insurance, salvage, resale or trade-in proceeds related to the work undertaken or the item purchased. O. Reg. 516/06, s. 26 (5).

(6) For each rental unit that is subject to the application, the percentage rent increase that is justified by capital expenditures shall be determined in accordance with the following rules.

1. Determine which capital expenditures affect the unit.

2. For each capital expenditure that affects the unit, multiply the amount of the capital expenditure determined under subsection (5) by the rent for the unit, and divide that result by the sum of the rents for all rental units in the residential complex that are affected by the capital expenditure.

3. If the Board is of the opinion that the amount determined under paragraph 2 for a capital expenditure does not reasonably reflect how the unit is affected by the capital expenditure,

i. paragraph 2 does not apply, and

ii. the Board shall determine an amount by another method that, in the opinion of the Board, better reflects how the unit is affected by the capital expenditure.

4. Add the amounts determined under paragraph 2 or 3, as the case may be, for all of the capital expenditures that affect the unit.

5. Amortize the amount determined under paragraph 4 over the weighted useful life of the capital expenditures that affect the unit, as determined in paragraph 6, in equal monthly instalments of blended principal and interest.

6. The weighted useful life of all capital expenditures that affect the unit shall be determined in accordance with the following rules:

i. For each capital expenditure that affects the unit,

A. divide the amount determined under paragraph 2 or 3, as the case may be, for the capital expenditure by the amount determined under paragraph 4, and

B. multiply the amount determined under sub-subparagraph A by the useful life of the capital expenditure, as determined under section 27.

ii. Add the results determined under sub-subparagraph i B for all capital expenditures that affect the unit and round to the nearest full year.

7. The amortization under paragraph 5 shall be calculated using the interest rate determined under section 20.

8. The percentage rent increase that is justified for the unit by capital expenditures is determined by dividing the amortized amount determined under paragraph 5 by the monthly rent for the unit, and multiplying the result by 100. O. Reg. 516/06, s. 26 (6).

Useful life of work or thing
27. (1) The useful life of work done or a thing purchased shall be determined from the Schedule subject to the following rules:

1. Where the useful life set out in Column 3 of the Tables in the Schedule is less than 10 years, the useful life of work done or a thing purchased shall be deemed to be 10 years.

2. If, when a thing is purchased, it has previously been used, the useful life of the thing shall be determined taking into account the length of time of that previous use.

3. If the work done or thing purchased does not appear in the Schedule, the useful life of the work or thing shall be determined with reference to items with similar characteristics that do appear in the Schedule.

4. Despite paragraphs 2 and 3, for the purposes of making a finding under this section, the useful life of work done or a thing purchased shall not be determined to be less than 10 years. O. Reg. 516/06, s. 27 (1); O. Reg. 342/17, s. 1.

(2) If the useful life of work done or a thing purchased cannot be determined under subsection (1) because the work or thing does not appear in the Schedule and no item with similar characteristics appears in the Schedule, the useful life of the work or thing shall be what is generally accepted as the useful life of such work or thing but in no case shall the useful life be determined to be less than 10 years. O. Reg. 516/06, s. 27 (2).

Homestead Land Holdings Limited v Abdelmalak, 2020 CanLII 117955 (ON LTB)

16. The Landlord's evidence must establish all of the following with respect to each of the capital expenditures:

• The work done meets the definition of "capital expenditure" set out in s. 18(1) of the regulation;
• The capital expenditure is "eligible" pursuant to s. 126 of the Act;
• The work was completed during an 18-month window calculated in accordance with s. 26(2) of the regulation;
• The work has been fully paid for or "incurred" pursuant to s. 18(1) of the regulation; and
• The useful life of the capital expenditure must be identified for each expenditure pursuant to s. 27 of the regulation.