The lack of affordable housing is a major issue facing Canada. Against this backdrop, affordable housing providers face a complicated landscape for development and operations, which may leave some without adequate funding.

One tool that has been gaining more attention is an exemption from municipal property taxes pursuant to Ontario’s Assessment Act.¹ Property tax exemptions in Ontario were relied upon less frequently in the past, largely as a reflection of various governmental subsidies and programs available. However, with resources for affordable housing providers shrinking, affordable housing providers have turned to property tax exemptions.

There is clear language in the Assessment Act that provides tax exemptions for corporations that are organized for relief of the poor (subject to additional criteria as set out below). However, the Municipal Property Assessment Corporation (MPAC) has recently advocated successfully for the courts to apply a requirement of “some form of endeavour” in order to qualify as an entity “organized for relief of the poor.”

In particular, just over a year ago, in Stamford Kiwanis Non-Profit Homes Inc. v. Municipal Property Assessment Corp,² the Divisional Court upheld a decision denying an affordable housing provider property tax exemptions. This was particularly surprising in that all parties agreed that the applicant relieves poverty, but the applicant was unsuccessful because they failed to meet the “some form of endeavour” criteria. Both the Superior Court and Divisional Court relied heavily on a 1998 Court of Appeal decision, Religious Hospitallers of St. Joseph Housing Corp. v. Regional Assessment Commissioner (Religious Hospitallers).³ In May 2024, the Court of Appeal for Ontario granted leave to appeal the Divisional Court’s decision.

A panel of five is set to hear this appeal and consider in part whether to overrule Religious Hospitallers. This may have a significant impact on affordable housing providers across the province. It is possible that the Court of Appeal’s decision may affect the quality and quantity of Ontario’s affordable housing for decades to come.

This article provides an overview of the decision under appeal, as well as the broader context involved.

1. The test for property tax exemptions for affordable housing providers

The Stamford Homes appeal concerns an application for property tax exemptions under s. 3(1)12(iii) of the Assessment Act. That provision provides that “[a]ll real property in Ontario is liable to assessment and taxation, subject to” exemptions, including for “[l]and owned, used and occupied by … any charitable, non-profit philanthropic corporation organized for the relief of the poor if the corporation is supported in part by public funds.”

As per the wording of s. 3(1)12(iii), the appropriate test is as follows:

1. Does the applicant own, use, and occupy the land?
2. Is the applicant a charitable, non-profit philanthropic corporation?
3. Is the applicant organized for the relief of the poor?
4. Is the applicant supported in part by public funds?

Does the applicant own, use, and occupy the land?

The first element is typically straightforward: the court will determine whether the applicant owns, uses and occupies the land.

Is the applicant a charitable, non-profit philanthropic corporation?

The second element is also fairly straightforward, though it is noteworthy that the organization need not be a registered charity to qualify for a tax exemption. Rather, the thrust of the jurisprudence establishes that the proper test is to look to the corporation’s “primary purpose.” A charitable primary purpose – such as the relief of the poor – suffices for this stage of the test. This may be established, for example, through incorporation documents or the corporation’s specific actions.

Is the applicant organized for the relief of the poor?

The third element is the most important to this discussion and once again draws on the organization’s primary purpose – is the corporation’s primary purpose the relief of the poor? The case law establishes that “the test for determining whether an exemption should be granted is whether the primary purpose of the institution comes within the words defining the exemption in the Assessment Act. This is true with respect to s. 3 of the Assessment Act generally.”⁴ The Ontario Court of Appeal cited this passage with approval in Diocese of Toronto Camps (Anglican Church of Canada) v. Municipal Property Assessment Corp.⁵

The applicant’s primary purpose is the most fundamental consideration when evaluating exemptions under s. 3 of the Assessment Act. MPAC consistently takes a very prescriptive approach in challenging exemptions and while prescriptive information can be helpful, it should not overwhelm consideration of the applicant’s primary purpose.

In the present appeal, Stamford Kiwanis Non-Profit Homes Inc. (Stamford Homes) argues for the application of the “part purpose” test from the Court of Appeal’s decision in London (City) v. Byron Optimist Sports Complex Inc., namely that “there must be an element of economic deprivation or need, the relief from which is a part of the purpose of the institution claiming the exemption.”⁶ Certainly, this part purpose test is also consistent with the clear wording of the exemption in the statute for affordable housing providers.

Is the applicant supported in part by public funds?

Finally, the fourth element of the test considers whether the corporation receives funds from a government source. It is notable that this consideration is related to the corporation and a plain reading provides a strong basis for the interpretation that the funding need only be tied to the corporation, as opposed to each property that the applicant owns, uses and occupies.

2. Cash flow, housing woe: Funding for affordable housing in Ontario

The Court of Appeal will make its decision at what may be a dynamic moment in the history of Ontario affordable housing policy.

The exemption under s. 3(1)12(iii) has become increasingly popular as the funding framework for Ontario’s affordable housing has shifted. Affordable housing was once funded at a national level, but the federal government gradually shifted much of the responsibility for housing programs to the provinces in the 1980s and 1990s. The Province of Ontario subsequently delegated responsibility to municipal service managers. The level of funding did not always flow equally with the delegation of responsibility, leaving some municipalities struggling for funding.

Under the prevailing scheme, tax refunds, loans and mortgages provided affordable housing providers with cash flow. Provincial loans were administered for capital improvements, which carried a financial benefit to affordable housing providers. Many of those provincial loans are coming to term and expiring, which may leave a shortfall for some affordable housing providers.

While various levels of government continue to pay into affordable housing programs and the federal government has re-entered the space with the National Housing Strategy, Ontario is still facing a veritable affordability crisis. In the face of this – and given that affordable housing is, after all, clearly for relief of the poor – more and more affordable housing providers are turning to s. 3(1)12(iii) to preserve the cash flow they need to continue their work.

It is notable that in Religious Hospitallers, the Court of Appeal considered that granting the tax exemption would have the effect of reducing a provincial subsidy for that same amount. These provincial subsidies, which were available in 1998, are no longer available.

In the present appeal, the respondents, MPAC and the City of Niagara Falls, argue that a similar issue occurs with the affordable housing provider’s tax exemption resulting in its tenants being unable to claim certain tax credits under the Taxation Act, 2007. It is notable that when the current wording of s. 3(1)12(iii) was enacted, the Taxation Act, 2007 had not been enacted, and the legislature could not possibly have had this in mind at that time. The suggestion that the tax exemption cannot mean that affordable housing providers could be exempt from taxes because of tax credits to some of their tenants is inconsistent with the clear wording of the exemption.

MPAC also argues that the exemption would simply shift the financial burden from Niagara Region Housing to the municipality. No evidence is cited in either MPAC or the City’s factum for this proposition, which is unusual when advancing such an argument. One would think that if this was such an important point for the court to consider, expert evidence on the implications – or at least some factual evidence – would have been tendered.

It is our experience that the amount of the subsidy available under the Housing Services Act, 2011⁷ does not equate to the total of taxes. Accordingly, the fact that there is some reduction in the subsidy should not undermine the intent of s. 3(1)12(iii), which is to provide tax exemptions to affordable housing providers. The effect of MPAC and the City’s argument is to increase the operating costs of affordable housing providers. Decreased operating costs for affordable housing providers will assist in increasing affordable housing – something this province needs. 

3. Stamford Homes’ application

Stamford Homes is an affordable housing provider. It owns three multi-unit residential properties with a total of 107 residential units. It rents 94 of those units to low-income tenants who pay rent set below the market average. Many of its tenants pay rent geared to income, a type of subsidized housing in which the tenant’s rent payment is a percentage of their household gross monthly income. This is a standard method used commonly for managing below markets.

Stamford Homes works with Niagara Regional Housing (a regional service provider under the Housing Services Act, 2011) and contracts a for-profit property management company to take care of the day-to-day management of the properties.

Stamford Homes applied to the Superior Court of Justice for an order declaring that the three properties are exempt from municipal taxation pursuant to s. 3(1)12(iii).

This case turns on the third element of the test, as outlined above. The only issue before the application judge was whether the applicant is “organized for the relief of the poor.” The parties agreed that the applicant relieves poverty, but MPAC and the City advocated for – and the courts to date have accepted that – the applicant does not perform an additional “form of endeavour” to qualify.

4. Tied hands and binding precedent: The decisions under appeal

Notwithstanding Stamford Homes’ argument that its purpose (either primarily or in part) is the relief of the poor, MPAC argued that the court was bound by the Court of Appeal’s conclusions in Religious Hospitallers.⁸

Stamford Homes’ objects, as set out in its letters patent, supported the applicant’s argument, but the court held that such objects are not conclusive: “It is the property for which the exemption is claimed and its actual operation and administration which are of primary concern in determining whether the exemption criteria are met.”⁹

The application judge dismissed the application. Essentially, the application judge determined that Stamford Homes’ involvement with the provision of affordable housing was too high-level.

The application judge found that he was bound by Religious Hospitallers, which stated, crucially, that “I read the words ‘organized for the relief of the poor’ to mean that it would be the corporation itself, by some form of endeavour of the corporation, which would provide the relief involved.”¹⁰

The application judge found that “some form of endeavour” was lacking. For one thing, Stamford Homes failed to prove that any of its funds came from any source other than its tenants and public funds. As was the case in Religious Hospitallers, Stamford Homes “does very little beyond finding and owning the Properties.”¹¹

On appeal to the Divisional Court, Stamford Homes argued that the application judge erred in finding he was bound by Religious Hospitallers, arguing – among other things – that the Court of Appeal in that decision made errors of statutory interpretation, that the application judge erred in giving an expansive interpretation to Religious Hospitallers’ “some form of endeavour” requirement in the relevant test and that Religious Hospitallers was distinguishable on the facts.

The Divisional Court did not find a reversible error in the decision below and dismissed the appeal.

5. The case of Religious Hospitallers

In Religious Hospitallers, the Ontario Court of Appeal denied an application for a property tax exemption where the applicant corporation “did very little” – it did not raise its own funds, it outsourced property management for a fee, it purchased the property with financing and paid that financing with public funds, and its tenants and the government bore the cost of its operations.¹² Both the application judge and the majority at the Divisional Court were unable to distinguish that case from the circumstances of Stamford Homes’ application.

On appeal, Stamford Homes argued that the application judge erred in relying on Religious Hospitallers. Among other things, it argued that the court in Religious Hospitallers relied on an outdated understanding of interpretive principles for taxation legislation – namely that such legislation has a single purpose: raising money to meet government expenditures. Appellate jurisprudence had, by the time Religious Hospitallers was decided, adopted a “dual purpose” approach, which also recognized social and economic purposes.¹³

Justice Lococo, with Justice Emery concurring, disagreed with the appellant. The majority did not find that the application judge was wrong to rely on Religious Hospitallers, despite the court’s failure to explicitly reference the proper interpretive principles in that decision. Nor did the majority see anything in the case law to suggest that the Court of Appeal erred in law when it considered the “endeavours” the corporation engaged in when determining whether it was organized for the relief of the poor.

In his minority reasons, Schabas J. stated that he agreed with the majority, but “this result is driven by what I regard as an unsatisfactory state of the law.” Religious Hospitallers, he wrote, “needs to be revisited.”¹⁴ Justice Schabas called out that decision for creating a requirement that a landowner engage in “some form of endeavour” to qualify as “organized for the relief of the poor.” This requirement is not found in the relevant legislation.

Justice Schabas wrote that Religious Hospitallers appeared inconsistent with Supreme Court of Canada jurisprudence, and cited examples of Ontario courts granting exemptions for corporations with levels of engagement similar to Stamford Homes’.

One thing both the majority and minority of the Divisional Court – as well as the application judge – agreed on was that if Religious Hospitallers was wrongly decided, it was not for the lower courts to take corrective action. This is something that the five judges on the bench at the Court of Appeal will need to grapple with.

6. The result in Stamford Homes is at odds with the primary purpose test

The type of forensic analysis advanced by the court is at odds with the primary purpose test advanced by the Court of Appeal in Anglican Church. If the primary purpose of this voluntary board that facilitates a corporation that provides affordable housing is not “relief of the poor,” why does it exist? The volunteer board is not profiting, so this desire to find some greater obscure level of endeavour could easily lead one to a result that is at odds with the intended purpose of the legislation: to provide a tax exemption for organizations operating for relief of the poor.¹⁵

Stamford Homes advocates for a part purpose test, and that is in our view consistent with the wording of the legislation and the intention to support corporations organized for relief of the poor. Taking a narrow approach to those who relieve poverty is simply at odds with the clear wording of the statute.

MPAC and the City point to the fact that there is a for-profit property manager. While not expressly stating it, they appear to be relying on the argument that granting Stamford Homes a property tax exemption would be contrary to the general principle in law that you cannot do indirectly what you cannot do directly. However, where the parties all agreed that Stamford Homes relieves poverty, it raises the question why there is a debate over whether it should do more.

Conclusion

The Court of Appeal’s upcoming decision in this case is expected to address this inconsistency, with the panel of five judges indicating that the court is considering the possibility of revisiting existing precedent. Affordable housing providers are key to the province’s objective of improving housing availability and opportunities in Ontario. Given the balance of the jurisprudence, the wording of the legislation and the important interests at play, it appears unlikely that this decision entirely remove property tax exemptions for affordable housing providers, as such an outcome would conflict with the meaning of the wording of the exemption in the Assessment Act.

The court is tasked with considering whether the threshold in Stamford Homes is an appropriate threshold or whether some other threshold should govern. A first principles approach centered on the primary purpose test would be a helpful outcome to assist affordable housing providers who are considering or seeking a property tax exemption.

Please note that this article does not constitute legal or professional advice or a legal opinion of any kind and readers are reminded that legislation and relevant information from legislative/governmental sources, as well as the decisions of the courts, remain the source of truth to be consulted.

Should you have any questions about property tax exemptions or whether they might apply to your property, please contact the authors Roberto Aburto, Conor McCarthy or any member of the Dentons Municipal, Land Use Planning and Development group.

1. R.S.O 1990, c. A.31. ↩
2. 2023 ONSC 6625. ↩
3. (1998), 42 O.R. (3d) 532 (C.A.). ↩
4. Buenavista on the Rideau v. Regional Assessment Commissioner, Region No. 2, 1996 CanLII 11792, 28 O.R. (3d) 272 (Div. Ct.), at 276. ↩
5. 2004 CanLII 34918 (Ont. C.A.), at para. 11, leave to appeal refused. ↩
6. (1983), 23 M.P.L.R. 10. ↩ 
7. S.O. 2011, c. 6, Sched. 1. ↩
8. Stamford Kiwanis Non-Profit Homes Inc. v. Municipal Property Assessment Corporation, 2022 ONSC 6392 (S.C.), at paras. 59, 68. ↩
9. Stamford Homes (S.C.), at para. 38.↩
10. Religious Hospitallers, at p. 8. ↩
11. Stamford Homes (S.C.), at para. 55.↩
12. Stamford Homes (S.C.), at para. 54.↩
13. Stamford Homes (Div. Crt.), at para. 61.↩
14. Stamford Homes (Div. Crt.), at para. 85. ↩
15. Subject to the additional criteria set out in s. 3 of the Assessment Act. ↩