Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Can two individuals claim a portion of the property tax amount for purposes of the Ontario energy and property tax credit where they each pay a portion of the property taxes on the principal residence?
Position: Depends on the facts, but not in this situation.
Reasons: An individual cannot include municipal taxes paid to determine occupancy costs if the individual is neither a beneficial owner nor an individual who pays rent, however, the beneficial owner of the residence for whom the payments were made may be able to include those amounts to determine his or her occupancy costs.
May 6, 2014
Luba Baran Income Tax Rulings Directorate
Manager Business and Employment Division
Legislative Amendments Division Nancy Shea-Farrow
Legislative Policy Directorate 905-721-5099
Attention: Luba Baran
2014-052876
Ontario Energy and Property Tax Credit
This is in response to your email of December 18, 2013, asking whether both a mother and her son can each claim a portion of the property tax amount on their XXXXXXXXXX Income Tax and Benefit Returns (T1) for purposes of the Ontario energy and property tax credit (OEPTC) when each of them paid part of the property taxes for the principal residence.
Facts
You have provided us with the following information:
1) The mother XXXXXXXXXX and her son, who is older than 18 years of age, XXXXXXXXXX.
2) The son lived with the mother throughout the XXXXXXXXXX taxation year and worked part-time. He was also a student taking XXXXXXXXXX courses part-time.
3) The son did not pay any rent to the mother.
4) The property title of the principal residence is in the mother's name. The property tax account is also in the mother's name. The mother purchased the property in XXXXXXXXXX.
5) The mother pays for the mortgage, utilities and home insurance. The mother paid approximately XXXXXXXXXX% and the son paid XXXXXXXXXX% of the XXXXXXXXXX property taxes.
6) They are in the process of preparing their XXXXXXXXXX T1.
7) The mother has also mentioned that paragraph 6 of page 12 in the XXXXXXXXXX booklet for the T1 refers to sharing a principal residence and she would like to know whether this would be applicable to her and her son.
For the purpose of our response, we assume that the mother is not a senior and that neither the mother nor the son has a cohabiting spouse or common-law partner.
Subsection 103.2(1) of the Ontario Taxation Act, 2007 (TA) states that, for July 2012 and subsequent months, an individual is eligible to be paid an Ontario Trillium Benefit (OTB) for a month if he or she is resident in Ontario at the beginning of the month. The amount of an individual's OTB for a month is the sum of his or her Ontario sales tax credit, OEPTC and Northern Ontario energy credit for the month.
The amount of an individual's OTB for the 12 months that relate to a particular base taxation year is the sum of all amounts each of which is the individual's benefit for a month in that 12-month period. The base taxation year for any month from July to December is the taxation year that ended on December 31 of the preceding taxation year. For example, for the months from July 2013 to December 2013 the base taxation year is 2012. The base taxation year for any month from January to June is the taxation year that ended on the second preceding taxation year. For example, for the months from January 2014 to June 2014 the base taxation year is 2012.
You are asking about the OEPTC portion of the OTB. The OEPTC is determined by sections 103.9 to 103.11 of the TA.
Generally, according to subsection 103.9(2) of the TA, an individual is eligible for an OEPTC for a particular month if all of the following conditions are satisfied:
1) At the beginning of the month, the individual
i. is 18 years of age or older; or
ii. a parent who resided or previously resided with their child; or
iii. is or previously was married or in a common-law partnership; and
iv. is resident in Ontario and not a person described in subsection 122.5(2) of the Income Tax Act.
2) On the last day of the applicable base taxation year, the individual had a designated principal residence (the "residence") in Ontario and was resident in Ontario. An individual designates his or her principal residence for a taxation year by completing a declaration setting out the address of his or her principal residence for the year and filing the completed declaration as part of the T1 filed by the individual for the year. See the "Application for the 2013 Ontario Trillium Benefit and the Ontario Senior Homeowners' Property Tax Grant" form.
3) The individual and, if required by the Minister of National Revenue for Canada, the person who is the individual's qualified relation for the month have each filed a T1 for the applicable base taxation year.
A qualified relation of an individual, in relation to a month specified for a taxation year, is defined in subsection 103.6(1) of the TA. Generally, a qualified relation is an individual that is that individual's cohabiting spouse or common-law partner at the beginning of the specified month. However, for purposes of 103.9 of the TA, if an individual has a qualified relation at the end of a base taxation year, the individual is deemed to have a qualified relation for every month that relates to that base taxation year. Likewise, if an individual does not have a qualified relation at the end of a base taxation year, the individual is deemed not to have a qualified relation for every month that relates to that base taxation year. It appears that in this situation there is no qualified relation.
The amount of an eligible individual's OEPTC for the month is calculated using the formula in subsection 103.9(3) of the TA. Part of this formula determines an individual's property tax amount as equal to the least of:
1) $700*,
2) the individual's occupancy cost for the base taxation year, and
3) the sum of,
i) the lesser of $50* and the individual's occupancy cost for the base taxation year, and
ii) an amount equal to 10% of the individual's occupancy cost for the base taxation year.
(*indexed for inflation under section 23 of the TA)
Occupancy cost is determined by section 98 of the TA and is used to calculate both the property tax amount and the energy amount of the OEPTC. Generally, under subsection 98(2) of the TA, the occupancy cost for a taxation year of an individual who is not a qualifying relation is the amount determined as follows:
1) Determine the sum of all amounts, if any, each of which is the amount of municipal tax that was paid for the year by, or on behalf of, the individual in respect of the residence of the individual that was, during the year, beneficially owned by or held in trust for the use and occupation of the individual.
2) Determine the sum of all amounts, if any, each of which is 20 per cent of the amount of municipal tax paid for the year by, or on behalf of, the individual in respect of the residence of the individual that was not beneficially owned or held in trust for the individual.
3) Determine the sum of all amounts, if any, each of which is 20 per cent of the amount of rent paid for the year by, or on behalf of, the individual for the residence of the individual, to the extent that the rent applied to the period in the year in which the individual occupied the residence as a principal residence. Add the amounts, if any, determined under paragraphs 1, 2 and 3.
Paragraphs 2.79 to 2.82 of Income Tax Folio, S1-F3-C2, "Principal Residence" provide general information on determining beneficial ownership. Since it appears that the son does not beneficially own the residence, paragraph 2 in subsection 98(2) of the calculation of occupancy cost is the paragraph relevant for the son. However, according to paragraph 2 of subsection 98(5) of the TA, the amount of the municipal tax paid for the residence that is included in paragraph 2 of subsection 98(2) only includes amounts paid for municipal tax if the owner of the residence includes that amount in computing income under the Income Tax Act. Our understanding is that the mother has not included any amount in her income for rent. Therefore, the son cannot include on his tax return the amount that he paid for municipal tax for the residence as occupancy costs for purposes of the OEPTC.
You have also asked about the ability to allocate the property taxes if you are sharing a residence. Subsection 103.11(3) of the TA states that if two or more individuals inhabit the same residence in a particular base taxation year and each of them are entitled to receive the OEPTC in respect of the residence, the total occupancy cost relating to the residence is allocated to each of them in a certain manner. The allocation methods for shared residence assume that individuals in paragraph 1 of subsection 103.11(3) each have a beneficial ownership in the residence and in paragraph 2 of subsection 103.11(3) that each of the individuals is paying rent in respect of the residence.
In the situation under consideration, neither of these paragraphs applies. As mentioned, it appears that the son is not a beneficial owner in the residence and that neither the mother nor the son pays rent in respect of the residence. In other words, the son can only include the amount of the municipal tax he paid (as municipal tax paid as part of his rent) for the residence in the calculation of his occupancy cost if his mother, the beneficial owner of the residence, includes the amount in her income for income tax purposes.
In our view, it appears that the son is paying municipal taxes on behalf of his mother and he is neither a beneficial owner nor does he pay rent in respect of the residence. Therefore, he would not be entitled to claim the amount of the municipal taxes he paid in the calculation of the property tax amount. However, providing all conditions are met, the mother can claim both the municipal taxes paid by her and the municipal taxes paid on her behalf by her son in respect of the residence under paragraph 1 of subsection 98(2) of the TA to determine occupancy costs for purposes of the OEPTC.
We trust our comments will be of assistance.
Pamela Burnley, CPA, CA
Manager
Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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