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We are concerned that the Ontario Energy and Property Tax Credit (OEPTC), one of the three credits that make up the Ontario Trillium Benefit (OTB), is flawed and the flaw has the effect of excluding some of the very people it was intended to help.

The OEPTC is claimed annually through the personal income tax and benefit declaration process.  It is explicitly designed with two distinct policy intentions: to help low to moderate-income Ontario residents with (a) their property taxes, and (b) the sales tax they pay on energy.

Mirroring its intent, the OEPTC has a property tax component and a home energy component.  Both homeowners and tenants can apply for it.  In the case of tenants, the assumption seems to be that the landlord will pass onto the tenant, through the rent they charge, a portion of the costs they pay for their property taxes and home energy costs.  This may explain why the calculation of both components of the OEPTC is based, for tenants, on the amount of rent they pay to the landlord.  For tenants, the OEPTC is an all-or-nothing credit: one can apply for both components or neither, but not for only one of the two.  Because of this, some low-income tenants are ineligible to claim any OEPTC support.

How is the OEPTC calculated?

When the tenant fills out their income tax and benefit return, they indicate the amount of rent they paid during the previous year (the tax year).  This forms the basis for calculating both the energy and the property tax components of the OEPTC.  In 2019, the energy component of the OEPTC could be as much as $241 for one household.

Once the income tax and benefit return has been submitted to the Canada Revenue Agency (CRA) which administers the OEPTC on behalf of the Ontario government, the OEPTC is subsequently paid to the eligible recipient, as part of the OTB, either in a lump sum or over a twelve month period beginning in the month of July of the year following the tax year in question.

There is an inconsistency between Ontario’s stated policy intent with respect to the OEPTC and the Ontario Taxation Act (Sections 98(5) 4.ii and 101.1)

The way the Ontario Taxation Act is currently written, tenants living in housing exempt from property taxes who pay their own home energy costs cannot claim the energy component of the OEPTC.

This is because the Taxation Act uses occupancy cost as the basis for the calculation of both the energy and the property tax components of the OEPTC.  And the Act specifically states that “no amount may be included in determining the amount of an individual’s occupancy cost for a taxation year in respect of a principal residence that was exempt in whole or in part from municipal tax for the year and for which no grant in lieu of municipal tax is payable by the owner under any statutory authority or, if such a grant in lieu is payable, the owner has not paid it.”

This is puzzling.  Nowhere in the 2019 tax information guide for Ontario residents or on the Ontario government’s website explaining the eligibility criteria for the OEPTC does the government specifically state that tenants living in housing exempt from property taxes cannot claim the OEPTC.

The CRA, which administers the OEPTC on behalf of the government of Ontario, states on its main webpage dealing with the Ontario Trillium Benefit and specifically the OEPTC that residents may qualify for the energy component if the “rent or property tax for your principal residence was paid by or for you.”

However, included within its detailed “Questions and Answers” webpage on the OEPTC, the CRA says that to be eligible to claim this credit, the “rent for your principal residence, which was subject to Ontario municipal or education property tax [our emphasis], was paid by or for you”.  In re-assessing the returns of some Ontario tenants who have claimed the OEPTC in the past, the CRA has specifically demanded that tenants provide proof “from the landlord of the rental property that the landlord pays full municipal and school taxes and the tenant’s costs are not subsidized by any government agency.”

Oddly, the 2019 tax information guide for Ontario residents advises anyone claiming the energy component of the OEPTC to keep their home energy costs receipts in case the CRA asks to see them.  This implies that the actual payment of energy costs is relevant (as one might expect).  Yet the way in which the legislation is written and implemented (including through the CRA-approved UFile software) does not allow the home energy costs to be used as the basis for claiming the energy component nor for claiming the energy component independent of the property tax component.

We know that this inconsistency has an impact on thousands of Ontario tenants who pay their own home energy costs while living on modest incomes in housing exempt from property taxes.

Many of these tenants do not know that they are living in housing exempt from property taxes.  Even where they may know this, they probably don’t know they cannot claim the OEPTC given its current eligibility rules.  Yet recent CRA re-assessments of tenants make it clear that the responsibility for knowing all this lies entirely with the tenant. 

Why this is inequitable

There is no issue with tenants living in housing exempt from property taxes being unable to claim the property tax component of the OEPTC.  However, because of the way the OEPTC is structured so that tenants can only claim both or neither component, tenants living in housing exempt from property taxes yet paying their own energy costs cannot claim the energy component by itself.

These tenants are in the same situation as modest-income tenants who, like them, pay their own home energy costs but, unlike them, live in housing which is subject to property taxes.  The latter tenants can claim the energy component of the OEPTC whereas the former cannot.  Yet both tenants face the same costs for their home energy.

There are two separate courses of action arising from this mess…

First, how to manage the current situation

a. What are the landlord’s responsibilities?

A landlord whose stock of rental properties is wholly or partly exempt from municipal property taxes should inform the affected tenants of this fact.  The landlord should point this out to potential tenants, state it in the tenant’s lease and provide a reminder on rent receipts issued to the tenant.  The landlord may wish to even state that, because of the property tax exemption, the tenant is not entitled to claim the OEPTC.

b. What are the CRA’s responsibilities?

Given that some landlords do not advise their tenants that they are renting accommodation exempt from property taxes and that many tenants are not aware of the OEPTC implications, CRA has identified numerous tenants who have incorrectly claimed the OEPTC.  To date, the CRA’s response has been to issue reassessments to these tenants.

When CVITP clients incorrectly claim the OEPTC, we think the CRA should adopt a more proactive approach to prevent this problem from being repeated in future returns.

First, the CRA should inform CVITP volunteers who have filed incorrect returns of their mistake and the reason for it.

Second, the CRA should ensure that its own experts are well aware of the OEPTC eligibility rules so that they can provide accurate CVITP Helpdesk advice when fielding volunteer inquiries on the OEPTC.

Third, the CRA should be educating CVITP volunteers in Ontario about the OEPTC eligibility rules, possibly through the circulation of an electronic information note on this topic.  (As we note elsewhere, the CRA should be applying a similar approach more generally when dealing with filing errors, to improve the quality of CVITP service.)

c. What are the CVITP volunteers’ and host organizations’ responsibilities?

CVITP volunteers have been authorized by the CRA to prepare income tax and benefit returns as accurately as possible.  As they are hosted by community-based organizations which themselves have been authorized by the CRA to host CVITP clinics, volunteers are also under an obligation to the host organization to protect its reputation for providing the highest quality of service.

When preparing a client’s return, the volunteer should scrutinize the situation of the client who is renting accommodation.  For many clients, it may be obvious that they are living in privately owned housing where property taxes are paid.

But for some, especially those living in social housing, it may not be obvious.  In these instances, the volunteer should ask whether the client knows if property tax has been paid.  (In some cases, the clients’ rental receipts may even state this.)

If the client does not know, the volunteer should explain the current OEPTC eligibility rules and then ask the client whether they want to claim the OEPTC.  The volunteer should also point out that the CRA has issued re-assessments of clients who incorrectly claimed the OEPTC in recent years.  Should the client nevertheless wish to claim the OEPTC, the volunteer may wish to proceed to claim the OEPTC.  The volunteer has fulfilled their duty in making the client aware of the issue and the potential risks should the client be incorrect.

On the other hand, if the client does know and confirms that no property tax was paid by the landlord, then the volunteer should not claim the OEPTC.  There may be an honest difference of opinion between the client and the volunteer.  In this case, the client has the choice of allowing the volunteer to proceed with the completion of the rest of their return or of doing the return themselves.

Second, how to fix this mistake

We believe the government of Ontario must correct the inconsistency between its stated policy intent for the OEPTC and its unfortunate, unintended consequence: the inequitable treatment of low-income tenants living in housing exempt from property taxes who pay their own home energy costs.

In our view, the Ontario government should:

1. Adjust the legislation to properly reflect the Ontario government’s stated intent for the OEPTC;

2. Separate the energy component and the property tax component into two separate credits;

3. Determine the energy credit on the basis of actual home energy costs (or some formula for determining notional energy costs) rather than occupancy costs;

4. Allow all tenants paying their own home energy costs to claim the energy credit; and

5. Make these changes promptly and communicate them to the CRA promptly, allowing for the changes to be reflected in the preparation of future income tax and benefit returns.

Here is what you can do…

If, like us, you feel this is not right, you can write directly to the Ontario Minister of Finance (minister.fin@ontario.ca) to tell them this.  Just take what we’ve said in the above section and adapt it to your own message.