| 912877 | |
| 24(1) | W.P. Guglich |
| (613) 957-2102 |
Attention: 19(1)
June 8, 1992
Dear Sirs:
Re: Low-Rental Housing Projects
This is in reply to your letter of October 11, 1991 concerning the status under paragraph 149(1)(n) of the Income Tax Act (the "Act") of limited-dividend housing companies that wish to expand their activities to the construction, holding or management of low-rental housing projects other than those regulated under the terms of the National Housing Act. Specifically, you are concerned whether the construction, holding or management of a low-rental housing project governed by the terms of an agreement with the Ontario Housing Corporation qualifies as a "low-rental housing project" within the provision of paragraph 149(1)(n) of the Act.
You describe the following situations:
1. Assume that a corporation already owns and manages one or more "low rental housing projects" within the meaning of that term under the National Housing Act and is pursuant to paragraph 149(1)(n) of the Act otherwise entitled to an exemption from tax under Part 1.
Assume that the corporation enters into an operating agreement with the Ontario Housing Corporation (the "OHC") to operate a rental housing project to accommodate persons of low or modest income, in accordance with the requirements of the OHC under the Private Assisted Rental Program (the "PARP"). The terms of the PARP "Rent Supplement Operating Agreement" provide that the OHC agrees to pay the owner of the building the difference between the full agreed to economic rent for the units, occupied by persons of low or modest income, and the rents scaled to income which the OHC wishes to see charged to such persons.
2. Making the same assumptions as in situation 1 above, the corporation enters into an operating agreement as a partner of a partnership, the sole activity of which is the construction, holding and management of such as project.
3. Making the same assumptions as in situation 1 above, the corporation enters into an agreement to manage such a property with another corporation that was itself party to the operating agreement with the OHC with respect to the project.
OUR VIEWS
To qualify for exemption from Part 1 tax pursuant to paragraph 149(1)(n) of the Act two conditions must be met:
(i) The corporation must be a "limited-dividend housing company" as defined in section 2 of the National Housing Act, and
(ii) all or substantially all of the business of the corporation must be the construction, holding or management of low-rental housing projects.
Section 2 of the National Housing Act defines a limited-dividend housing company to be a "company incorporated to construct, hold and manage a low-rental housing project, the dividends payable by which are limited by the terms of its charter or instrument of incorporation to five percent per annum or less".
For purposes of the definition of "limited-housing company" in the National Housing Act, section 2 of that Act defines a "low- rental housing project" to be a "housing project undertaken to provide decent, safe and sanitary housing accommodation, complying with standards approved by the (Central Mortgage and Housing Corporation), to be leased to families of low income or to such other persons as the (Central Mortgage and Housing Corporation),
(a) in its discretion, in the case of a housing project owned by it, or
(b) under agreement with the owner, in the case of a housing project not owned by it,
designates, having regard to the existence of a condition of shortage, overcrowding or congestion of housing".
As regards the condition described in item (ii) above, it is our view that section 2 of the National Housing Act and paragraph 149(1)(n) of the Income Tax Act are in pari materia. Consequently, the definition in section 2 of the National Housing Act would apply to the phrase "low-rental housing project" in paragraph 149(1)(n) of the Act. As a result, the proposed undertaking of the corporation in conjunction with the OHC in all three situations described above could not be considered a "low- rental housing project".
Paragraph 149(1)(n) requires that all or substantially all (90% or more) of the corporation's business must be the construction, holding or management of low-rental housing projects. Therefore, the corporation could not qualify for exempt status under 149(1)(n) of the Act if its non-qualifying business exceeds 10% of its total business.
We trust our comments will be of assistance to you.
Yours truly,
G. Thornleyfor DirectorBusiness and General DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch