As a result of the recent rise in interest rates, purchasers of condominium units will now receive interest on their deposits. Coming January 1, 2023, interest payments on deposits will be further increased with the introduction of further regulations under the Condominium Act.
Prescribed rate of interest increase – this applies now
Section 82(1) of the Condominium Act, 1998 (the “Act”), provides that the declarant shall pay interest at the prescribed rate to the purchaser on all money that a person pays on account of the purchase price of a proposed unit or that the declarant credits to the purchase price of a proposed unit. O. Reg. 48/01 Section 19(3) defines the prescribed rate of interest as follows:
- For the period from April 1 to September 30 of each year, 2% per annum below the bank rate at the end of March 31 of that year; and
- For the period from October 1 of each year to March 31 in the following year, 2% per annum below the bank rate at the end of September 30 immediately before that October.
What is the “bank rate”?
Section 19(2) of O. Reg. 48/01 provides that the bank rate established by the Bank of Canada as the minimum rate at which the Bank of Canada makes short-term advances to members of the Canadian Payments Association. As of July 13, 2022, the bank rate was increased to 2.75%.
Definition of ‘prescribed rate’ change – as of January 1, 2023
The definition of “prescribed rate” will be changing effective January 1, 2023. However, if at least one agreement of purchase and sale for a project was entered into before January 1, 2023the current definition of the prescribed rate, described above, is in effect and the new rate does not apply.
What is the new ‘prescribed rate’ definition?
- Reg. 450/22 Section 19.2(3) provides that the new prescribed rate of interest as of January 1, 2023, shall be:
- For the period from April 1 to September 30 of each year, the policy interest rate at the end of March 31 of that year; and
- For the period from October 1 of each year to March 31 in the following year, the policy interest rate at the end of September 30 immediately before that October.
What is the “policy interest rate?
The “policy interest rate” under Section 19.2(2) of O. Reg. 450/22 means the target rate for the overnight rate established by the Bank of Canada. The Bank of Canada determined the target rate for the overnight rate to be 2.5% as of July 13, 2022.
When is Interest Payable?
Sections 82(4)-(5) of the Act provides that interest at the prescribed rate is due and payable on interim occupancy. The declarant has the option of paying interest on final closing, however the interest owing on interim closing will then bear interest at the prescribed rate and accrue to final closing, thereby increasing the amount owing to a purchaser.
Declarants must provide purchasers with an annual T5 return of investment income slips with respect to the accrued interest earned each year. This requires that purchasers provide a social insurance number (SIN).
It is important to keep in mind that SINs are sensitive personal information. The Office of the Privacy Commissioner of Canada discourages private sector organizations from collecting SINs. However, collecting SINs for the purposes of providing T5 slips is permissible.
SINs should be collected using a separate document from the agreement of purchase and sale. Ideally, collecting a purchaser’s SIN should be done in writing with an explanation as to the requirement for the collection of the SIN for income reporting purposes.