Ontario changes HST rent rules. Landlords outraged

NEWS RELEASES

MINISTRY OF MUNICIPAL AFFAIRS AND HOUSING (ABRIDGED)

FEDERATION OF RENTAL-HOUSING PROVIDERS OF ONTARIO

************************* Clarifying rules on above-guideline rent increases

April 12, 2010 - To protect tenants, Ontario is clarifying rules governing how the HST will affect above-guideline rent increases.

Under current regulations, a landlord could apply for an above-guideline rent increase based on the HST on utility costs.

A proposed change to the Residential Tenancies Act (RTA) would prevent tenants from being charged the HST in an above-guideline rent increase for utility costs.

As established by the RTA, landlords will continue to be eligible for annual rent increase guidelines based on the annual Consumer Price Index (CPI) increases

The proposed regulations have been posted online at the government's website for 45 days to allow Ontarians to comment.

"Our aim is to protect tenants. The proposed changes would also be fair to landlords because they would see HST costs for utilities reflected in the annual rent increase guidelines, and in the rents they could set for new tenants when units become vacant," said, Jim Bradley, minister of municipal affairs and housing.

"This initiative would protect tenants from unfair rent increases, while maintaining the current rent increase guidelines based on the Consumer Price Index," added Adam Spence, Ontario Association of Food Banks

Quick facts

It is estimated that Ontario's comprehensive tax plan, including the introduction of the HST and tax cuts for business, will help create almost 600,000 new jobs within the next 10 years, while making Ontario more attractive for business investment.

Almost 3 million low-income Ontario families will receive a new, permanent sales tax credit of up to $260 for each adult and child per year - one of the most generous in Canada.

A new Ontario property tax credit will provide an additional $270 million in property tax relief every year to low- to middle- income Ontario homeowners and tenants.

The rent increase guideline for the year 2010 is 2.1 per cent, the maximum amount by which a landlord can increase the rent of an existing tenant without seeking the approval of the Landlord and Tenant Board.

************************* McGuinty government dupes media and tenants on HST

QUEEN's PARK - Yesterday the McGuinty Liberal government misled the media and tenants and caused further harm to rental housing quality by announcing that landlords will not be able to pass on HST costs to tenants in above guideline rent increases (AGIs).

“This bizarre move by the Liberal government was designed to capture headlines and dupe the media into believing that tenants are somehow going to be protected from negative HST impacts,” said Vince Brescia, president & CEO of FRPO.

The government gave deliberately misleading information in its press release designed to capture media attention, and also designed to attack landlords rather than help them deal with the huge negative consequences of the HST that are specific to the rental housing industry.

“It is unfortunate that the government has chosen not to help the industry deal with the massive negative impact of the HST on Ontario’s rental stock and tenants,” said Brescia. “They seem to be more interested in headlines than in helping tenants."

The HST is expected to increase industry costs by about five percent, leading to a cost increase with inflation of about seven percent next year.

At the same time, the annual rent increase guideline is going to be 0.5 percent next year.

“This impact is devastating for the rental housing industry,” said Brescia.

The only discretionary expense that owners have is maintenance and capital repairs.

Tenants are going to be very negatively impacted.

“The industry asked for government assistance to help the industry transition to the HST, and reduce impacts on tenants, but the government has responded by saying they won’t do anything to help the industry transition to the HST,” said Brescia.

One of the fallacies in the government’s press release is that there was a “loophole” in the current law.

It has always been the case that all costs incurred by owners are allowed in AGIs.

The GST has always been an allowable cost in AGI applications.

This has never been a “loophole.”

AGIs are designed to allow landlords to deal with extraordinary costs.

Another fallacy in the government’s release is that this move somehow has a significant impact in protecting tenants from the HST impact.

AGIs are a rarely used tool, affecting only a tiny portion of Ontario’s rental stock.

On average, there are only about 115 applications per year for AGI’s on utility costs in Ontario, yet there are 1,312,290 rental households in the province.

This government is using this rarely used mechanism in an attempt to dupe people into believing that rule changes in this area will protect tenants from negative HST impacts.

It is an unfortunate deception

Utility costs, however, are just one of many costs negative impacted by the HST.

Many other rental housing costs, such as property management, waste disposal, repairs and maintenance, legal, accounting, landscaping, snow removal, to name a few, will see full 8 percent cost increases when the 13 percent HST takes effect on July 1, 2010.

Ultimate, hundreds of dollars a year in new costs will be passed onto tenants through their rent.

“The government has done nothing to protect tenants from the HST,” said Vince Brescia, opresident and CEO of the Federation of Rental-housing Providers of Ontario (FRPO). “In future years tenants will see their rent increase by up to $,1000 a year while these costs get passed on.”

"More importantly, in the short term landlords will be forced to slash repairs and maintenance by up to 45 percent to deal with the massive new HST costs the government is imposing. This is unfortunate for Ontario’s rental stock, which is aging and badly in need of more capital investment, not less. The worst impact will be on tenants, who care greatly about repairs and maintenance."

Yet another fallacy in the government’s press release is that the industry can recover these costs through the annual guideline.

The annual guideline for next year is currently forecast to be 0.5 percent.

Yet the HST will increase costs by about five percent on its own, and lead to a cost increase next year of about seven percent when inflation is included.

“The Liberal government is kicking rental owners in the teeth when they are down,” said Brescia.

“How is a business supposed to survive if it can’t pass on its costs?” asks Brescia.

The government’s announcement has no impact on 26 percent of Ontario tenants who already pay for their utilities separately from their rent, nor does it have any impact on hundreds of thousands of new tenants or tenants who will move this year.

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