Assessment Review Board

ISSUE DATE: December 11, 2025

FILE NO.: RD 24-011D

Assessed Person(s): M.A.N.

Appellant(s): M.A.N.

Respondent(s): City of Hamilton

Property Location(s): Address Withheld

Municipality(ies): City of Hamilton

Roll Number(s): Roll Number Withheld

Appeal Number(s): 3523607

Taxation Year(s): 2023

Legislative Authority: Rules 101-103 of the Assessment Review Board’s Rules of Practice and Procedure

Parties	Counsel/Representative
M.A.N.	Self-represented
City of Hamilton	David Janaszek

REQUEST FOR: A review of the Board’s Decision WR 186501 issued on July 03, 2024

HEARD: October 15, 2024 in writing

ADJUDICATOR(S): Dirk VanderBent, Vice-Chair

DECISION

OVERVIEW

1On August 12, 2024, a person identified as M.A.N. filed a Request for Review with the Assessment Review Board (the “Board”) respecting M.A.N. v Hamilton (City), 2024 CanLII 63721 (ON ARB), a decision issued on July 3, 2024 (“the Decision”).

Background

2The Decision is in respect of an application filed with the Board by M.A.N. requesting a refund of municipal taxes pursuant to s. 357(1)(d.1) of the Municipal Act, S.O. 2001, c.25 as amended (the “Municipal Act”) on the basis that he was unable to pay because of extreme poverty. Although M.A.N. paid the municipal tax levied in the amount of $2,407.77 on M.A.N.’s residential property (the “Subject Property”) for the 2023 taxation year (the taxation year in question), he requested a full refund from the City of Hamilton (the “City”).

3In the Decision, the Hearing Member found that M.A.N. failed to establish that he was unable to pay his municipal taxes, so it was unnecessary to consider whether M.A.N. was in a condition of extreme poverty.

4M.A.N.’s financial circumstances can be summarized as follows:

1. The Decision states that M.A.N. is self-employed and purchased the Subject Property in 2021 for $535,000. By 2023, the outstanding balance of the mortgage was $484,000 (rounded). In his Request for Review, M.A.N. states that he purchased the property for $550,000 with a $70,000 downpayment, $35,000 of which was borrowed from his Registered Retirement Savings Plan (“RRSP”) under a Federal Homebuyer’s Plan.

2. The Decision states that, since its purchase, M.A.N. both lived at and rented out the Subject Property. In his Request for Review, M.A.N. states that he only rented the Subject Property from October 2023 to March 2024. However, neither he, nor the Decision, states what the rental income was.

3. The Decision states that M.A.N. owns a property in Mexico valued at $24,000. In his Request for Review, M.A.N. explained that he purchased this property under a contract where he must pay $120 per month for 10 years before he owns it. He asserts that it is incorrect to state that he owns a $24,000 asset. He did not state when he began these monthly payments.

4. The Decision confirms that, at year-end, M.A.N. owed $17,042.57 on a line of credit, and had credit card debt of $8,104.59. In his Request for Review, he states that he used the line of credit and the credit card to fund his mortgage payments.

5The Decision indicates that M.A.N.’s total monthly income is $2,725.47 and his total monthly expenses, including payments for the mortgage and credit card, and car payments total $3,610.08, resulting in a monthly deficit of $884.81.

6In determining that M.A.N. did not establish that he was unable to pay his municipal taxes, the Hearing Member relied on M. M. U. v. Toronto (City), 2015 CanLII 46826 (ON ARB) (“M. M. U.”), stating at paragraph 21 that taxpayers applying under s. 357(1)(d.1) are required to make use of the resources available to first address their expenses relating to the necessities of life and to maintaining their property. In this case, the Hearing Member found that M.A.N. has demonstrated that he was able to do so. At paragraph 19 of the Decision, the Hearing Member stated:

In the opinion of the Board, not only did the Applicant not cut from the necessities of life but was able to maintain his life as he wanted to. This indicates to the Board that the Applicant is not in a negative situation when it comes to poverty.

7Although not referenced in the Decision, the Board notes that M.A.N.’s application included a copy of the Canada Revenue Agency’s Notice of Assessment for the 2023 taxation year, which states that his total taxable income is $6,944 and that his total tax payable is zero. There were tax deductions at source in the amount of $3,349.52. This with other tax credits amount to a credit balance of $5,015.75. However, there was a previous unpaid balance of $7,385.73 still owing, so the 2023 credit only served to reduce this unpaid balance to $2,369.98. The net result is that M.A.N. did not receive an income tax refund payment for 2023. The Decision does not reconcile how M.A.N.’s monthly income is $2,725.47, but his total annual income reported on his tax return is only $6,944.

8In his Request for Review, M.A.N. has made submissions respecting the Hearing Member’s consideration of other monthly expenses referenced in the Decision, which the Board considers unnecessary to describe in detail in light of its findings on this Request for Review.

Relevant Rules

9In considering whether to grant a Request for Review submitted pursuant to Rule 101 of the Board’s Rules of Practice and Procedure (the “Rules”), the test to be applied is whether the requester has established any of the grounds set out in Rule 102 which states:

Grounds for Review

102. A request for review will not be granted unless the Board is satisfied that:

a) the Board acted outside its jurisdiction or violated the rules of natural justice or procedural fairness;

b) the Board made a significant error of law or fact such that the Board would likely have reached a different decision;

c) the Board heard false or misleading evidence from a party or witness, which was discovered only after the hearing and would have affected the result; or

d) there is new evidence that could not have reasonably been obtained earlier and have affected the result.

10The Board’s powers in considering a Request for Review are set out in Rule 103 which states:

Review Order

103. Upon considering a request for review, or on its own initiative, the Board may:

a) dismiss the request; or

b) after providing all parties an opportunity to make submissions:

(i) confirm, vary, or cancel the decision; or

(ii) order a rehearing on all or part of the matter.

Grounds for Review

11In overview, M.A.N. cites the grounds listed in Rule 102 (a) (b) and (d). The Board summarizes his position as follows. He challenges the Hearing Member’s finding that he was able to make use of the resources available to first address his expenses relating to the necessities of life and to maintaining his property, and, for this reason, he did not establish that he was unable to pay his municipal taxes. He states: “Putting my house up for sale against my will is not a life anyone would want. Nor is borrowing nearly $15,000 from a line of credit to make your mortgage payments. Nor is having to borrow money from a credit card to pay your mortgage.”

12M.A.N. requests that the Board vary the Decision to provide that the municipal taxes for 2023 be refunded in full.

13The Board requested submissions from the City which advised that it took no position with respect to M.A.N.’s Request for Review.

Issues for Review

14Although M.A.N. has cited Rule 102(a), M.A.N. provided no evidence to support a conclusion that the Board acted outside its jurisdiction. The Hearing Member clearly had the jurisdiction to hear M.A.N.’s application. Similarly, M.A.N. provided no evidence to indicate that the Hearing Member violated rules of natural justice or procedural fairness. While M.A.N. disagrees with the Hearing Member’s analysis and conclusions, this is not a basis to support a finding there was a violation on either ground. M.A.N. also did not provide any new evidence in his Review Application, so Rule 102(d) also does not apply. The concerns M.A.N. has raised in respect of Rule 102(a) and (d), are that the Hearing Member did not consider the evidence filed in support of M.A.N.’s application, and that the Hearing Member’s analysis and conclusions are not supported by the evidence adduced at the hearing. These concerns are properly considered under Rule 102(b).

15Consequently, there are two issues in this proceeding:

• Issue 1: Did the Hearing Member make a significant error of law or fact?

• Issue 2: If so, would the Board likely have reached a different decision?

Result

16The Board finds that the Hearing Member made a significant error of law or fact, but does not find that the Board would likely have reached a different decision. The Board finds that the evidence adduced does not establish that M.A.N. was unable to pay his municipal taxes because of extreme poverty.

ANALYSIS

Legal Test to be Applied

Legislation

17Section 357(1)(d.1) of the Municipal Act states:

357 (1) Upon application to the treasurer of a local municipality made in accordance with this section, the local municipality may cancel, reduce or refund all or part of taxes levied on land in the year in respect of which the application is made if,

(d.1) the applicant is unable to pay taxes because of sickness or extreme poverty;

Scope of this Review

18Under s. 357, ‘unable to pay’ may be due to separate causes – sickness or extreme poverty. Therefore, factors in determining ‘unable to pay’ that are relevant to sickness may not necessarily be the same as the factors that are relevant to ‘extreme poverty’. Unless stated otherwise, the Board’s findings in this Review pertain only to ‘extreme poverty’, as M.A.N.’s application is based on this ground only.

Legislative Interpretation

Purpose of s. 357

19Regarding rules of legislative interpretation, s. 64 of the Legislation Act, 2006, S.O. 2006, c. 21, Sched. F states:

Rule of liberal interpretation

64 (1) An Act shall be interpreted as being remedial and shall be given such fair, large and liberal interpretation as best ensures the attainment of its objects.

20In Municipal Property Assessment Corporation v. BCE Place Limited, 2009 CanLII 50862 (ON SCDC) (“BCE Place”), the Divisional Court outlined the correct approach to statutory interpretation of taxation statutes, confirming that:

1. A legislative provision should be given a strict or liberal interpretation depending on the purpose underlying it, and that purpose must be identified in light of the context of the statute, its objective and the legislative intent;

2. Such interpretation will favour the taxpayer or the tax department depending solely on the legislative provision in question, and not on the existence of predetermined presumptions; and

3. Substance should be given precedence over form to the extent that this is consistent with the wording and objective of the statute.

21As stated in Bayshore Shopping Centre Limited/KS Bayshore Inc. v Ottawa (City), 2022 CanLII 78197 (ON ARB) (“Bayshore”), the collection of taxes is a mandatory requirement (see s. 340(1) and (4) of the Municipal Act). As such, s. 357(1), which permits a refund, reduction or cancellation of municipal taxes on the basis of extreme poverty or sickness, is a clear exception. As a matter of legislative interpretation, exceptions should be strictly interpreted. However, although, s. 357(1)(d.1) is an exception to the general requirement to pay municipal taxes, BCE Place requires that the Board also consider the specific purpose of s. 357(1)(d.1).

22The Board must consider the underlying purpose of s. 357(1)(d.1) in the entire context of the Municipal Act. In this regard, while the provision provides relief from the requirement to pay taxes, it also protects the taxpayer from the consequences of failing to pay municipal taxes. These consequences are significant. Section 349(1) of the Municipal Act provides that taxes may be recovered, with costs, as a debt owing to the municipality. Section 349(3) further provides that taxes are a special lien on a property in priority to every other person except the Crown. To recover taxes, s. 351(1) of the Municipal Act also authorizes a municipality to seize personal property belonging to the taxpayer or located on the taxpayer’s property.

23Thus, absent an exception, taxpayers who are unable to pay taxes because of extreme poverty or sickness could lose both their real and personal property, resulting in serious financial and social repercussions for themselves and dependent family members, particularly if the real property is their residential home. The Board finds that the legislative purpose of s. 357(1)(d.1) is to provide relief from such hardship. In substance, it indicates a social policy intended to provide a limited form of relief from financial hardship to particularly vulnerable taxpayers in a municipality. For this reason, the Board concludes that the Legislature, in enacting s. 357(1)(d.1), clearly intended to prioritize remedial relief over enforcement of the payment of taxes.

Types of property, partial payment of municipal taxes and the inter-relationship between ‘unable to pay’ and ‘extreme poverty’

24Section 357(1)(d.1) imposes three specific conditions to qualify for relief: (i) the taxpayer must be ‘unable to pay’ taxes; (ii) because of ‘sickness’; or (iii) because of ‘extreme poverty’.

25In past decisions, debate arose whether the Board should first determine whether the taxpayer has demonstrated an inability to pay taxes, or whether the taxpayer’s circumstances establish ‘extreme poverty’ or sickness. In a 2019 Board Review Decision, F.E.J.B. v Mississauga (City), 2019 CanLII 59502 (ON ARB), although the Reviewing Member noted that either approach is correct, he observed that it was appropriate to first determine whether there is an inability to pay, because, if there was, it would be unnecessary to consider whether the taxpayer is in ‘extreme poverty’. However, the Board notes that the reverse is also true. Persons who are wealthy but spend more than they earn, may have an inability to pay, but it would be unnecessary to make this determination because they are not living in ‘extreme poverty’. More importantly, the use of the word “because” indicates that ‘unable to pay’ is qualified by the requirement that there be ‘extreme poverty’. This indicates a legislative intention that the ‘extreme poverty’ qualification must be considered first.

26In further support of this finding, the Board first observes that s. 357(1)(d.1) provides for a “cancellation, reduction, or refund of all or part of taxes levied on land” (emphasis added). While the Municipal Act does not provide a specific definition for “land”, s. 1, the interpretation section, defines “rateable property” as “land that is subject to municipal taxation”, and s. 307 of the Municipal Act states that “All taxes shall …. be levied upon the whole of the assessment for real property…”. Thus, it is clear that “land” refers to real property that is subject to municipal taxation. Consequently, s. 357(1)(d.1) applies to any assessed real property regardless of its classification. In other words, the application of s. 357(1)(d.1) is not restricted to residential properties.

27However, as discussed in greater detail below, poverty refers to a sufficient standard of living, which includes shelter cost, and is defined in terms of the taxpayer’s income. Therefore, in a s. 357(1)(d.1) application, shelter costs must be determined based on the taxpayer’s principle residence. Typically, s. 357(1)(d.1) applications are submitted in respect of land that is the taxpayer’s principal residence. However, where the property is not the taxpayer’s principal residence, a determination respecting ‘extreme poverty’ must be based on shelter costs associated with the taxpayer’s principal residence, not the property that is the subject of a s. 357(1)(d.1) application.

28This leads to the question of partial payment of municipal taxes. A taxpayer’s disposable income that is above the poverty line, may be at a level where payment of the municipal taxes may reduce such income to a level which qualifies as ‘extreme poverty’. In other words, payment of the full amount of municipal taxes would force the taxpayer into extreme poverty. In such circumstances, based on income level, the taxpayer may be able to pay part of municipal taxes, before qualifying as being in ‘extreme poverty. Consequently, the Board, must first determine if the taxpayer’s is in ‘extreme poverty’ before considering whether the taxpayer is ‘unable to pay’ the remaining balance of municipal taxes.

Importance of Consistency in Approach

29Section 357 provides that a municipality may choose to have its Treasurer decide an application made under s. 357, in which case the taxpayer may appeal the municipality’s decision to the Board. Alternatively, a municipality may pass a by-law authorizing the Board to decide the application (see s. 357(11)). For municipalities that opt to decide s. 357 applications, each municipality could set its own standard for what constitutes “unable to pay because of extreme poverty”. However, the fact that a municipality’s decision can be appealed to the Board, indicates that the Board’s interpretation of s. 357(1)(d.1) reflects a standard to be applied by all municipalities. Consequently, it is of paramount importance that the interpretation of s. 357(1)(d.1) include a definition of ‘extreme poverty’ that can be consistently applied by both the Board and municipalities when adjudicating applications under this section.

30Section 357 provides that applications must be made on an annual basis. Provided that the taxpayer’s circumstances have not changed, there should be consistent determinations made for each taxation year. In such circumstances, whether the application succeeds or fails for a taxation year should not vary from year to year because the assigned adjudicators held differing subjective views as to what constitutes ‘extreme poverty’ or an ‘unable to pay’.

Definition of ‘Extreme Poverty’

31Neither the Municipal Act nor City of Toronto Act, 2006, S.O. 2006, c. 11, Sched. A (“COTA”) provides a definition for ‘extreme poverty’ or ‘poverty’, nor do they use the term ‘poverty’ in any other provision. Thus, it is left to the Board to interpret the meaning of ‘extreme poverty’. The Board approaches this task by first considering the term ‘poverty’ and then examining the import of the adjective descriptor ‘extreme’. Based on this analysis, the Board then turns to the practical question as to what range of annual income constitutes ‘extreme poverty’.

Previous Board Decisions

32Prior Board decisions have considered the meaning of ‘poverty’, albeit in the context of interpreting the meaning of ‘extreme poverty’.

33In a Board Review Decision, Bela Acres Holding Inc. v Toronto (City), 2019 CanLII 64631 at paragraph 23, the Reviewing Member noted that prior Board decisions had consistently interpreted that ‘extreme poverty’ means having no resources available to provide for the basic necessities of living.

34The Board does not find this definition useful. First, s. 357(1)(d.1) does not apply when a taxpayer is unable to pay for the basic necessities of living - it is engaged when a taxpayer is unable to pay municipal taxes.

35Furthermore, the definition of “extreme poverty” in Bela is unclear. A taxpayer may have just enough income to provide for basic necessities of living, but no surplus income to pay municipal taxes. Would this mean that the taxpayer is not in “extreme poverty” and therefore disqualified from receiving relief under s. 357(1)(d.1)? Finally, this interpretation of “extreme poverty” does not provide a definition or standard for what constitutes ‘the basic necessities of living’. Thus, a determination of what constitutes ‘extreme poverty’ requires a subjective interpretation by each adjudicator as to what constitutes a ‘basic necessity of living’. Such subjective interpretations have led to debates such as whether having a land line telephone is a necessity of living if the taxpayer also owns a cell phone (see W.H.S.M. v Mississauga (City), 2019 CanLII 98694 (ON ARB).

36The Decision refers to the understanding of “extreme poverty” applied in the Board’s decision in M. M. U. The same description of “extreme poverty” is more comprehensively stated in A.M. v Toronto (City), 2016 CanLII 42756 at paragraph 22:

…The Act qualifies the level of poverty as “extreme” and in the Board’s view this raises the level of requirement to qualify for relief under the Act to a level that is materially and substantially above that of the simple and ordinary meaning of poverty. The Board believes that individuals must demonstrate that after having called upon every resource available to them and having explored every reasonable opportunity to mitigate any financial stresses there are no means of being able to pay some or all of their property taxes. In addition, the individuals must demonstrate that they have actually taken steps and explored every reasonable opportunity to manage their debts and mitigate their tax responsibility.

For the following reasons, the Board does not adopt this interpretation.

37The first difficulty with the above definition of ‘extreme poverty’ is that it does not consider that the purpose of s. 357(1)(d.1) includes consideration of the consequences of enforcement if municipal taxes are owing and not paid. The second problem is that this interpretation over-emphasizes enforcement of the obligation to pay taxes. The Board has already found that the purpose of s. 357(1)(d.1), is to provide remedial relief, not the enforcement of payment of municipal taxes. The third difficulty is that it provides no concrete definition of what ‘extreme’ means. The stated test, i.e. “materially and substantially above the simple and ordinary meaning of poverty” provides no concrete guidance on how to determine who is ‘extremely poor’ rather than ‘poor’. It does not explain or define the “ordinary meaning of poverty” nor how, in concrete and objective terms, what “materially and substantially” is to be interpreted. Thus, the definition leaves the determination of ‘extreme poverty’ to the subjective interpretation of the adjudicator.

Relevance of taxpayer conduct

38Regarding the criteria that “individuals must demonstrate that they have actually taken steps and explored every reasonable opportunity to manage their debts and mitigate their tax responsibility” (“the Conduct Requirement”), the Board finds that s. 357(1)(d.1) does not include consideration of how the taxpayer became poor, nor that a taxpayer must justify their economic status by establishing that they attempted to mitigate their financial situation.

39In support of the above finding, the Board first notes that the wording of s. 357(1)(d.1) makes no reference to how a taxpayer fell into ‘extreme poverty’. It only requires that the taxpayer is in ‘extreme poverty’. Furthermore, the Conduct Requirement is effectively a requirement to ensure enforcement of payment of municipal taxes which contradicts the very purpose of s. 357(1)(d.1) which is to provide relief from enforcement to pay taxes.

40In making this finding, the Board notes that a taxpayer’s financial mismanagement, however that may be defined, does not create an entitlement to relief under s. 357(1)(d.1). As noted above payment of municipal taxes is a debt that takes priority over all other consumer debts. Furthermore, as is discussed in greater detail below, relief under this section is objectively based solely on consideration of taxpayer’s total disposable income and any equity in assets owned by the taxpayer that the taxpayer is able to liquify.

Definition of Poverty

41Black’s Law Dictionary,10th ed. (Thompson Reuters, 2015) provides three definitions of ‘poverty’

1. The condition of being indigent, the scarcity of the means of subsistence.

2. Dearth of something desirable.

3. A level of income below the threshold considered necessary to achieve a sufficient standard of living.

42The Board finds that the third definition best reflects the term ‘poverty’ as it is used in s. 357(1)(d.1). This definition is consistent with the remedial nature of the provision, and income is a relevant consideration when determining whether a person is living in poverty. Defining poverty in terms of the “threshold” level of income to achieve a sufficient standard of living also allows for an objective definition of poverty that is not subjectively tied to a particular taxpayer’s inability to pay for necessities of living.

Meaning of ‘Extreme’

43The online Collins English Dictionary (2005, 1997, 1991 by Penguin Random House LLC.) defines ‘extreme’ as “very great in degree or intensity”, citing “people living in extreme poverty” as an example. The word ‘extremity’, which is a derivative of the word ‘extreme’, is defined as “the farthest or outermost point or section”. The Board finds that these two definitions reflect the meaning of ‘extreme’ as it is used in s. 357(1)(d.1).

44Taking the definition of “poverty” and “extreme” together, “extreme poverty” means the range of income that runs from zero to a level of income that is below the threshold considered necessary to achieve a sufficient standard of living.

45The above analysis is important because it indicates that ‘extreme poverty’ does not mean that a taxpayer must be completely financially destitute before the taxpayer can qualify for relief under s. 357(1)(d.1), nor does it mean that a taxpayer must have no liquidity (i.e. no money after payment of expenses) before the taxpayer will be relieved of the obligation to pay some or all of their municipal taxes.

46Conversely, the Board observes that a taxpayer who earns an income well above the poverty line, may appear to be poor due to mismanagement of his/her financial affairs, but, clearly, does not meet the test set out in s. 357(1)(d.1).

47A person with a higher income will have greater flexibility to manage his/her financial affairs in order to mitigate financial stresses. Persons living in ‘extreme poverty’ have limited financial resilience to manage their finances. They may have little or no choice but to resort to debt to maintain, or attempt to attain, a sufficient standard of living. Furthermore, if they do mismanage their finances, resulting in debt, they have limited means to get out of debt. This is another reason why it is necessary to first determine if the taxpayer’s financial circumstances constitute ‘extreme poverty’, as the condition of extreme poverty limits the taxpayer’s ability to mitigate financial stresses.

48In summary, the key analysis is to ascertain the taxpayer’s income, and whether it falls within the range of incomes which qualify as ‘extreme poverty’ - running from zero to a level of income that is below the threshold considered necessary to achieve a sufficient standard of living.

Range of Incomes that Constitute ‘Extreme Poverty’

49As noted above, “extreme poverty” is the range of income that runs from zero to a level of income up to the threshold considered necessary to achieve a sufficient standard of living. For the purposes of this Request for Review, this threshold is described as ‘the Poverty Line’.

50Ascertaining this threshold value is a challenging task. It raises the question of what it means to be poor in Canadian society. Poverty may be a relative concept, and comparative, i.e. it refers to people who have less income as compared to others in a particular society.

51So, the question remains, what should the poverty line be? In addressing this question, the Board considers three main measures provided by Statistics Canada.

Statistics Canada’s Measures of Poverty

52Section 16(1)(b) of the Statutory Powers Procedure Act, R.S.O. 1990, c. S.22 states that a tribunal may take notice of any generally recognized information or opinions within the tribunal’s specialized knowledge. In this context, the Board can take notice of the measures of poverty as published by Statistics Canada, which is the government agency mandated by the Canadian Federal Statistics Act, R.S.C., 1985, c. S-19 to, among other things, collect and publish statistical information related to social and economic conditions of people in Canada. Statistics Canada’s mandate to define poverty in terms of income levels is further confirmed by Canada’s Federal Poverty Reduction Act, S.C. 2019, c. 29, s. 315 (the “Poverty Reduction Act”), section 7, which requires an official metric, the “Official Poverty Line” to measure poverty. Section 1 states that the Official Poverty Line is the “Market Basket Measure, as published by Statistics Canada…” (emphasis added). In support of this conclusion, the Board notes that, in R v Anderson, 2022 SKQB 137, the Saskatchewan Court of (now) King’s Bench, at paragraph 58, took judicial notice of the Market Basket Measure as Canada’s Official Poverty Line.

53A Government of Canada publication, Towards a Poverty Reduction Strategy – A backgrounder on poverty in Canada, (October 2016, published online by Statistics Canada) describes three main measures to determine poverty as published by Statistics Canada:

1. Low Income Measure

2. Market Basket Measure

3. Low Income Cut-off

The Board will describe each of them in turn.

Low Income Measure

54The Low Income Measure defines low income as being below a fixed percentage of income:

1. A household is considered low income if its income is below 50% of median household incomes. It is, therefore, a relative measure of low income. In other words, poverty is based on income as compared to the income of others.

2. Since many countries report low income on this basis, it is frequently used for international comparisons.

Market Basket Measure

55As noted above, the Market Basket Measure (“MBM”) is Canada’s Official Poverty Line. It is described as a basket of goods and services necessary to maintain a modest basic standard of living. The basket has five main components: shelter, food, clothing, transportation, and other necessities. The Board describes these components as “Basic Living Necessities”. The MBM is based on the needs of a sample family of four, two adults and two children. Respecting shelter, a representative cost is determined by considering the cost of rental units (based on the Canada Mortgage and Housing Corporation’s National Occupancy Standard). Food is based on Health Canada’s National Nutritious Food Basket. Clothing is based on Winnipeg’s Harvest acceptable living level clothing basket. Transportation is based on the combination of costs for both owning and operating a vehicle as well as public transportation (where available). The cost of other necessities is calculated as a percentage of the total cost of food and clothing.

56The total cost of the Basic Living Necessities creates an MBM “threshold” which is the minimum amount of money required by a family to have a modest basic standard of living. This measured cost varies across the country and between rural and urban communities. While the MBM value is based on a family of four, it is adjusted, using a statistical equalization formula, to provide total cost values for economic families (persons who live together in the same residence, excluding boarders and tenants) of different sizes ranging from one to ten persons. The MBM is calculated once every five years (“the base cost”), most recently for 2023, and the base cost is adjusted each subsequent year by increases in the Consumer Price Index to account for inflation.

57Due to varying and shared costs for different sizes of families, a family’s disposable income (gross income less standard statutory deductions such as income tax) is adjusted, and then compared to their MBM threshold to determine the family’s poverty status. If a family’s disposable income is less the MBM threshold, then the family is considered to be living in poverty. The MBM data is available for 49 different communities across Canada and is more sensitive to differences in the cost of living than other measures of poverty.

58The MBM is an absolute measure of low income. In other words, it defines poverty income based on the family’s financial ability to purchase Basic Living Necessities. It is not a relative comparison of the family’s income to incomes earned by other families.

59Statistics Canada publishes the MBM income data in tables posted on-line. Attached to this Review Decision are tables showing the following MBM 2023 base year data for regions in Ontario: (i) Total Costs Adjusted for Family Size; and (ii) Shelter Costs.

Low Income Cut-offs

60The Low Income Cut-offs (“LICO”), are income thresholds below which a family will devote a larger share of its income than the average family on the necessities of food, shelter and clothing.

61Based on a Survey of Household spending conducted by Statistics Canada every 2 years, the methodology determines how much after-tax income is spent on food, shelter and clothing. For example, say the average family spends 43% of its after tax income for these items. As defined by Statistics Canada, a family is considered to be living in “straightened circumstances” if it spends an additional 20 per cent or more of its after tax income on food, shelter and clothing. A statistical analysis is applied to answer the question: What would after-tax income have to be, for a family to spend 63% of its income on food, shelter, and clothing. This income level is defined to be the LICO.

62The LICO is a relative measure of low income, as it is based on what the average amount a family would spend on food, shelter, and clothing, irrespective of family income. Since data is available as far back as 1976, it is frequently used to examine low-income trends over several years.

Measure to determine to determine ‘poverty’ under s. 357(1)(d.1)

63Because s. 357(1)(d.1) applies to all municipalities in Ontario, and the family size of the taxpayer will vary, the preferred measure to determine the range of income that constitutes “extreme poverty” should provide a sufficient level of detail to address both of these variables.

64The Low Income Measure does not address either of the above variables. Further, it only provides the median income and does not provide an income range for ‘extreme poverty’.

65The LICO data does provide both levels of detail. However, as noted above, it is a relative, not absolute, measure of poverty. Furthermore, while it provides income levels based on municipal population densities, the income level is a generic value based on nation-wide data. The LICO does not provide information based on specific location, either by province or for specific municipalities within a province.

66The advantages of the Official Poverty Line are: (i) it is an absolute measure of poverty; and (ii), it provides data for municipal population densities specific to Ontario, as well as some specific urban areas, because costs vary from region to region. It also provides data based on family size. Furthermore, the MBM is legislatively recognized as Canada’s Official Poverty Line for all regions across Canada.

67Using the Official Poverty Line as the definition for ‘poverty’ under s. 357(1)(d.1) is viable because the MBM data ,on which the Official Poverty Line is based, is updated and published by Statistics Canada on an annual basis. The provision of data for each specific year is an important advantage, because s. 357(1)(d.1) applications are made in respect of a specific calendar year, based on the taxpayer’s financial circumstances for that year. The MBM also provides a consistent and objective measure of poverty.

68Based on the above analysis and findings, the Board finds that the Official Poverty Line, i.e. MBM Total Costs, is the appropriate measure to define ‘poverty’ as this term is used in s. 357(1)(d.1).

Measure to determine of ‘Extreme Poverty’

69The Board has earlier found that ‘extreme poverty’ is a level of income that is below the threshold considered necessary to achieve a sufficient standard of living. This indicates that ‘extreme poverty’ refers to a level of income that is less the MBM Total Costs. However, the question remains: How much less?

70In answering this question, the Board observes that the Poverty Reduction Act not only prescribes the MBM as Canada’s Official Poverty Line, it also authorizes Statistics Canada to produce other metrics to measure the level of poverty in Canada (see s. 8). One these published metrics is Deep Income Poverty (“DIP”) which defines when a family cannot afford a substantial share of the Basic Living Necessities included in the MBM basket. Under the Statistics Canada definition, a household is considered to be in DIP if its disposable income falls below 75% of the MBM Total Costs.

71The Board finds that the purpose of the DIP is the same as the purpose of ‘extreme poverty’ in s. 357(1)(d.1), namely, to identify a degree of poverty that is significantly below a sufficient standard of living. Considering this commonality of purpose, the Board finds that ‘extreme poverty’ is equivalent to the DIP. Therefore, ‘extreme poverty’ refers to level of disposable income that is 75% of the MBM Total Costs. In support of this conclusion, the Board notes that, because this metric is based on the MBM data, it maintains all the advantages of the MBM data which the Board has already found makes it an appropriate measure for purposes of applying s. 357(1)(d.1). It constitutes an objective standard for determining whether a taxpayer is in ‘extreme poverty’, a standard that can be applied consistently by the Board and municipalities across the province.

72If a taxpayer’s disposable income is above the applicable ‘extreme poverty’ income level, then the taxpayer does not qualify as being in ‘extreme poverty’. Consequently, the taxpayer does not meet the requirement that he/she is ‘unable to pay because of extreme poverty’. Thus, these income levels establish a threshold or cut-off point for extreme poverty. Accordingly, the Board describes the table of values showing values that are equal to 75% of the MBM Total Costs values as the Extreme Poverty Income Cut-offs’ (“EPIC”).

73In summary, the MBM is Canada’s Official Poverty Line and the EPIC is the ‘extreme poverty’ line for purposes of applying s. 357(1)(d.1).

Dual Components of the Poverty Test

74In order to determine whether a person meets the ‘extreme poverty’ qualification criterium (“the Extreme Poverty Test”), it necessary to compare the persons ‘disposable income’ to the poverty line. ‘Disposable income’ refers to income that the taxpayer receives in the taxation year that the taxpayer can spend to pay for Basic Living Necessities.

75If disposable income is lower than the Official Poverty Line, then the person is deemed to be living in poverty. As this is the method adopted for the Poverty Reduction Act, it follows that the same method should be applied to determine if a taxpayer is living in ‘extreme poverty’, since the definition of ‘extreme poverty’ is based on the MBM and DIP. This raises the following questions: What constitutes disposable income? Does “disposable income” include consideration of the taxpayer’s assets? Are there any adjustments to be made to a taxpayer’s income to arrive at his/her disposable income? These questions are addressed below.

What constitutes “Disposable Income”?

76For the purpose of determining whether an Extreme Poverty Income Cut-off applies, consideration is given to the taxpayer’s total income from all sources.

77Regarding income, s. 3 of the federal Income Tax Act, R.S.C. 1985, c 1 (5th Supp), defines income as “income for the year from each office, employment, business and property, …”. Income from “office” typically includes employment income, investment income. Interest earned on financial investments may also be included. These are all taxable income. However, the full amount of taxable income is not available to the taxpayer to spend, because income tax and other statutory deductions must be paid. Therefore, ‘disposable income” includes post-deduction income, more commonly described as after-tax income.

78In addition to after-tax income, the taxpayer may receive non-taxable income, such as: (i) income received from some government support programs; (ii) gifted money; and (iii) inheritance payments and lottery winnings.

79The Board collectively describes all these sources of income as “Disposable Income”.

80However, in applying the Extreme Poverty Test, a question remains: Does Disposable Income include the taxpayer’s equity in capital assets?

Income versus Capital

81In addressing this question, it is first necessary to clarify the Board’s use of the terms ‘income’ and ‘capital’. In terms of fiscal accounting, there is a distinction.

82‘Capital’ refers to the value of a person’s ownership interest in an asset (typically described as equity). An asset includes real property as well as personal property such as chattels, bank accounts, savings/investment accounts, corporate shares and bonds. ‘Liquidity’ refers to the person’s ability to convert equity into disposable cash, i.e. money that the taxpayer can access to purchase goods and services.

83The distinction between income and capital is best explained using an example:

1. A taxpayer owns a residential property valued at $500,000, which is subject to a $400,000 mortgage debt;

2. The taxpayer does not earn any rental income from the property and has no other income from office, employment, business or property or government support programs; and

3. The taxpayer has a bank chequing account with a year-end balance of $1,000.

In this example, the taxpayer has total equity of $101,000. However, the taxpayer cannot access the $100,000 equity in the home (unless the taxpayer uses the home as collateral for a loan, or sells the property – this is discussed further below). The taxpayer has no Disposable Income. So, the only asset liquidity that the taxpayer has is the $1,000 that the taxpayer can withdraw from the bank account. Based on the taxpayer’s Disposable Income, the taxpayer would qualify as living in ‘extreme poverty’, even though the taxpayer owns substantial equity in the residential property, which, if liquidated, would be more than enough to pay municipal taxes. If the taxpayer’s equity in the property were to be considered, then the taxpayer would not qualify as living in ‘extreme poverty’.

Does Disposable Income include the taxpayer’s equity in capital assets?

84To answer this question, it is first necessary to determine the meaning of ‘unable to pay’, which is not defined in the Municipal Act or COTA. Black’s Law Dictionary defines ‘ability” as “The capacity to perform an act or service; esp., the power to carry out a legal act.” The online Collins English Dictionary defines ‘unable’ as “lacking the necessary power, ability, or authority (to do something)”.

85The Board observes that the Legislature could have specified ‘extreme poverty’ as the sole qualification criterium in s. 357(1)(d.1), the premise being that a taxpayer in ‘extreme poverty’ cannot afford to pay municipal taxes. However, the Legislature, instead, chose to include a second qualification criterium: ‘unable to pay’, in addition to ‘extreme poverty’. The Legislative perspective is that a person who is living in ‘extreme poverty’ may still be able to pay municipal taxes. In this regard, the Board notes that ‘poverty’ describes a condition, ‘ability to pay’ describes performance of an action. This indicates that the Legislature contemplated that ‘extreme poverty’ is based on income, and, if ‘extreme poverty’ were the only qualification criterium, then capital wealth would not be considered. Thus, the inclusion of the ‘unable to pay’ in s. 357(1)(d.1), is intended to ensure that the taxpayer’s capital wealth is taken into account. This leads to an important conclusion: the scope of the term ‘extreme poverty’ is not defined in terms of ability to pay.

86In further support of the above conclusion, the Board has earlier found that poverty refers to a level of income below the threshold considered necessary to achieve a sufficient standard of living. From a financial perspective, a person whose income is not sufficient to pay for Basic Living Expenses, would be forced to liquidate equity in capital assets to obtain disposable cash. This person can be described as being poor, but his/her poverty is alleviated by ‘drawing on’ capital wealth to be able to pay for Basic Living Expenses. In short, poverty is not defined by the assets you own, but the income you receive. Furthermore, owning equity in a capital asset or a savings/investment account, in and of itself, does not establish that the taxpayer can access money to pay for municipal taxes. The taxpayer must be able to liquidate equity to generate the cash flow required to pay municipal taxes. This is clearly an ability to pay consideration.

87Finally, the Board notes that, under the Federal Poverty Reduction Act, the regime for determining whether a person is living in poverty, is based only on disposable income. The person’s asset holdings are not considered, other than any disposable income generated by these capital assets (e.g. interest paid on investments).

88Two other questions that must be answered are: (i) Whose Disposable Income must be considered? and (ii) Does Disposable Income include borrowed money?

Whose Disposable Income is to be considered?

89Turning to the first question, the Board finds that the income of all owners of the property must be considered, as each owner is liable to pay municipal taxes under the Municipal Act. Furthermore, as noted above, the Extreme Poverty Income Cut-offs are based on the number of persons residing at the property in question. Consequently, for purposes of s. 357(1)(d.1), where the property in question is used as a residence, the Disposable Income of all persons residing at the property, including tenants (as rental income is taxable income), must be considered, as they can be expected to contribute to the costs of maintaining the property, which includes municipal taxes.

Does Disposable Income include borrowed money?

90In addressing this question, the Board first observes that money received by borrowing is offset by the obligation to repay the amount borrowed. Borrowing only serves to increase the taxpayer’s cashflow; it does not increase the taxpayer’s Disposable Income. Therefore, it is not relevant to the quantification of the taxpayer’s Disposable Income. However, as discussed below, borrowed funds may be relevant to the ‘unable to pay’ qualification criterium.

Required Adjustments to Disposable Income

Childcare Costs

91Statistics Canada does not include childcare (daycare) costs in the MBM. Instead, an adjustment (reduction) is made to person’s disposable income when determining whether the person’s income falls below the Poverty Line. For this reason, when determining whether a taxpayer’s income meets the EPIC level, an adjustment must be made to the taxpayer’s disposable income for daycare costs incurred during the taxation year.

Shelter

92The taxpayer’s shelter cost is a special consideration given the way the MBM measures shelter costs. Therefore, it is necessary to describe the MBM treatment of shelter cost in greater detail. It is based on Canada Mortgage and Housing Corporation’s National Occupancy Standard – specifically the cost of a three-bedroom non-subsidized rental unit. This cost includes utilities, appliances, and insurance. As noted above, the total MBM threshold is adjusted for family size using what it described as a statistical equalization formula. However, this equalization formula is not considered to be sufficiently accurate to provide adjusted values for individual components of the MBM, shelter cost being one of them. For example, while food costs can be expected to statistically increase with family size, the same cannot be said for shelter. For example, a three-bedroom apartment may accommodate a family of 1 to four persons, so the shelter cost would not statistically increase as family size increases. To account for this, the MBM does not adjust shelter cost based on family size. Instead, when determining whether the family’s income fall below the Official Poverty Line, Statistics Canada makes a ‘Tenure Type Adjustment’ to a person’s disposable income to account for the fact that home ownership costs are not the same as MBM shelter cost (i.e. cost of a three-bedroom apartment).

93To further explain, the taxpayer’s home ownership costs (mortgage interest, home insurance, appliance maintenance costs, hydro/natural gas costs for heating, air conditioning, and metered water costs) may not be equal to the MBM shelter value. For example, a taxpayer owner holding a high mortgage may have costs that exceed the MBM shelter value, whereas a taxpayer who owns his/her residence mortgage free may have lower costs. Therefore, an adjustment may be required to the taxpayer’s disposable income to reflect this difference in cost, before comparing the taxpayer’s income to the applicable EPIC level.

Uninsured Medical or Prescribed Therapy Costs, and Prescription Drug Costs

94In some cases, a taxpayer may incur significant costs for uninsured medical treatments, prescribed therapy treatments, or uninsured prescription drugs for either the taxpayer or a dependent family member who is living with the taxpayer. Again, an adjustment must be made to the taxpayer’s disposable income for such expenditures.

Home Appliance Replacement

95While the MBM shelter costs includes maintenance costs for appliances, a home owner may, in any given year, incur a cost to replace an appliance (furnace/boiler, air conditioner, washer, dryer, refrigerator, or stove). These personal property items are obviously necessary to maintain a standard of living for the taxpayer and the taxpayer’s family. Therefore, expenditures to replace these appliances would also require an adjustment to the taxpayer’s disposable income. The cost could be the full cost of replacement if the appliance is purchased outright, or, if acquired under a payment plan, the total amount of payments made during the year.

Capital maintenance costs

96For the following reason, the Board finds that no adjustment should be made for capital asset maintenance expenses. Extreme Poverty is based on Basic Living Necessities, i.e. consumer costs incurred to maintain a modest standard of living. Capital expenditures, such as repairs or maintenance of the Subject Property constitute an investment in maintaining or increasing the value of the asset. The purpose of s. 357(1)(d.1) is to provide a relief from poverty, not to support the taxpayer’s on-going investment in asset ownership.

Measure to determine if the taxpayer is ‘unable to pay’

Requirement to liquify equity in capital assets and savings/investment accounts

97The example cited above, in the section entitled Income versus Capital, highlights five questions respecting the relevance of equity in capital assets in an application made under s. 357(1)(d.1):

1. Can equity in capital assets be considered when determining whether a taxpayer is unable to pay municipal taxes because of extreme poverty?

2. Can a taxpayer be required to liquify equity by selling an asset?

3. Can a taxpayer be required to liquify equity by borrowing funds using the asset as security for the loan?

4. At what point in time is the quantum taxpayer’s equity to be measured?

5. If a taxpayer is able to liquify equity, is the full amount of funds received considered when determining whether the taxpayer is ‘unable to pay’?

98The Board will first address each question in turn.

1. Can equity in capital assets be considered when determining whether a taxpayer is unable to pay municipal taxes because of extreme poverty?

99Asset equity is a financial resource that may be available to the taxpayer. As payment of municipal taxes is a priority, asset equity is a relevant consideration when making a determination made under s. 357(1)(d.1). This is so, even if the taxpayer has chosen not liquify equity during the taxation year, provided that the taxpayer was able to do so during the taxation year.

2. Can a taxpayer be required to liquify equity by selling an asset?

100For the following reasons, the Board finds that a taxpayer should not be expected to sell real or personal property.

101The Board has already found that the purpose of s. 357(1)(d.1) includes protecting the taxpayer from the consequences of failing to pay taxes, namely: (i) the property being sold to collect the tax debt (s. 349(3)); and (ii) seizure of personal property to be sold at auction (s. 351(8)). Consequently, in applying s. 357(1)(d.1), any consideration that the taxpayer should be required to sell real or personal property in order to pay municipal taxes, directly contradicts this purpose. Based on this analysis, the Board finds that a taxpayer is not required to sell assets in order to pay for municipal taxes.

3. Can a taxpayer be required to liquify equity by borrowing funds using the asset as security for the loan?

102The Board finds that a taxpayer can be expected to liquify equity by borrowing against an asset – the most common examples being increasing the mortgage on the taxpayer’s property, or using the property to secure a line of credit, because it is a financial resource which may result in an ability to pay. However, there must be evidence that the taxpayer is, in fact, able to borrow. Referring to the example of increasing a mortgage on the taxpayer’s property, there must be evidence that a financial institution would approve a mortgage increase or a line of credit. A common practical reality is that a taxpayer, whose Disposable Income is so low that it qualifies as ‘extreme poverty’, may be unable to obtain lender approval for a loan, and, consequently, would be unable to liquify equity in the property.

103Of course, borrowing money increases the taxpayer’s debt expense. Therefore, even if the taxpayer could borrow against an asset, the remaining question is whether the taxpayer would have sufficient income, after paying for the Basic Life Necessities, to be able to pay the increased debt expense. The taxpayer cannot be expected to incur additional debt at the cost of having insufficient income to pay for the Necessities of Life. Since EPIC levels are DIP levels of income, i.e. an income level that only pays for 75 per cent of Basic Living Necessities, it cannot be assumed that a taxpayer would be able to incur further debt.

104Furthermore, in determining whether a taxpayer would be unable to liquify equity by borrowing against an asset, the taxpayer’s current debt load must also be considered, because a lender would consider this debt load when deciding whether to loan money to the taxpayer.

105In some cases, the taxpayer may own savings/investment accounts such as a tax free savings account, RRSP, or bank savings and chequing accounts, which can be liquidated without the need to borrow. These assets can be considered, unless the asset is ‘locked in’, i.e. the taxpayer is legally unable to withdraw funds from the asset. In the case of RRSP’s, the amount withdrawn will be subject to income tax, which would reduce the amount of money received by the by the taxpayer.

4. At what point in time is the quantum taxpayer’s equity to be measured?

106The Board observes that the quantum of the taxpayer’s equity can vary over time. It can increase/decrease due to market changes or decrease if the taxpayer liquifies all or part of the equity.

107In answering this question, the Board observes that an application under s. 357(1)(d.1) applies to a full taxation year. An application cannot be adjudicated until the end of the taxation year, as the value of assets can vary over the year. Consequently, the value of the assets must be determined as of December 31st of the taxation year under application/appeal.

5. Should the Board consider funds drawn from equity that the taxpayer has already spent during the taxation year?

108For the following reasons, the Board finds that, if the taxpayer has already spent liquified equity during the taxation year, this equity can, nonetheless, be considered when determining whether the taxpayer is ‘unable to pay’. As noted earlier in this Review Decision, the taxpayer’s conduct, i.e. financial management, is not a relevant consideration. The relevant enquiry is whether the funds were available to the taxpayer.

6. If a taxpayer is able to liquify equity, is the full amount of funds received considered when determining whether the taxpayer is ‘unable to pay’?

109Where a taxpayer is able to liquify equity in assets, the taxpayer is entitled to first devote such funds to Basic Living Necessities up to the EPIC level, because s. 357(1)(d.1) provides relief from payment of municipal taxes, so long as the taxpayer qualifies as being in extreme poverty. This concept is best explained using an example. Assume a taxpayer’s disposable income is $2,000 below the applicable EPIC level, and the taxpayer is able to liquify equity in asset holdings in the amount of $5,000. In determining ability to pay, $2,000 of this liquified equity will be allocated to payment of Basic Living Necessities. Therefore, only $3,000 is considered to be available for payment towards municipal taxes. This amount would be added to any other cash the taxpayer may have (typically in a bank account) for purposes of applying the cashflow reserve (which is discussed below).

Household Cashflow Reserve

Introduction

110As the Board has previously stated, a taxpayer living in 'extreme poverty' has limited financial resilience. For this reason, when determining whether the taxpayer is 'unable to pay', the Board has considered whether the taxpayer should be able to maintain a minimum amount of money in a liquid asset, such as a bank account, to pay for the costs of Basic Living Necessities as they arise. The Board describes this as a "Cashflow Reserve". The amount of the Cashflow Reserve would be excluded from consideration when determining whether the taxpayer is ‘unable to pay’ municipal taxes.

111For example, assume that a taxpayer in 'extreme poverty' has no liquidity other than a modest balance in a chequing account that is used to pay the costs of Basic Living Necessities, and that this balance would be exhausted if the taxpayer is required to pay municipal taxes. This would render the taxpayer unable to pay for upcoming Basic Living Expenses, until such time as the taxpayer receives further income. If a taxpayer is forced to choose between: (i) maintaining cashflow in order to be able to buy food and pay rent; or (ii) pay municipal taxes; the taxpayer would have no option but to maintain cashflow. Failure to pay the municipal taxes, would then expose the taxpayer to seizure and sale of the taxpayer's land and/or personal property. The Board observes that this contradicts the very purpose of s. 357(1)(d.1) which is to protect the taxpayer from such consequences.

112Furthermore, it is a fiscal reality that the date an expense must be paid often does not coincide with the date income is received to pay the expense. Hence, there may be funds in a bank account reserved to pay a future expense. For example, see J.O. v Mississauga (City), 2023 CanLII 19280 (ON ARB) where a year-end bank balance was erroneously considered to be available for payment of municipal taxes, whereas it was, in fact, money reserved for payment of the following month's mortgage payment. Allowing for a Cashflow Reserve can prevent such circumstances from occurring.

113In summary, the Board concludes that the taxpayer should be able to maintain a Cashflow Reserve, which would be excluded from consideration when determining whether the taxpayer is unable to pay municipal taxes. This is consistent with the Board’s earlier finding that the purpose of s. 357(1)(d.1) is to provide remedial relief.

Purpose of a Cashflow Reserve

Canada's Official Poverty Dashboard - Asset Resilience

114In addition to the Official Poverty Line, s. 8 of the Poverty Reduction Act provides for a schedule of metrics to measure the level of poverty in Canada. This schedule, described by Statistics Canada as Canada's Official Poverty Dashboard, includes 12 additional poverty indicators used by government to track its overall progress in reducing poverty. One of these indicators is described as 'asset resilience'. Its purpose is to track the progress of initiatives used to support the middle class by protecting Canadians from falling into poverty and by supporting income security and resilience. This indicator represents the proportion of people who have enough liquid financial assets to cover at least three months of the after-tax 'low income' measure (which appears to refer to the LICO described earlier in this Review Decision). The underlying rationale for this metric is:

Liquid financial assets can provide some relief for families faced with a disruption to their primary source of income, so they can continue to meet their essential needs and financial obligations. Therefore, families with lower liquid financial assets may be more vulnerable to a disruption in income than families with higher liquid financial assets.

Source: https://www.statcan.gc.ca/en/topics-start/poverty

115It may be attractive to assume that, for purpose of applying s. 357(1)(d.1), a Cashflow Reserve should be equal to three months of the applicable MBM Total Cost value, or alternatively, the applicable EPIC value. However, for the following reason, the Board finds this is not to be the case. The Board observes that the s. 357(1)(d.1) exemption is only available if the taxpayer already is in extreme poverty. Therefore, s. 357(1)(d.1) is not intended to generally prevent the taxpayer from falling into poverty, nor is it aimed specifically aimed at providing financial security in cases where the owner experiences a disruption in income. In this regard, the Board observes that s. 357(1)(d.1) does not refer explicitly or implicitly to employment status. Instead, s. 357(1)(d.1) refers to a specific debt - municipal taxes. Its purpose is to provide only a narrow measure of relief from financial hardship where 'extreme poverty' already exists. Accordingly, the Board concludes that the purpose of the Cashflow Reserve is not to provide income security through asset resilience.

116It is axiomatic that the cost of Basic Living Necessities reflects the cost of basic survival in Canadian society, so these costs must take priority over all other debts, including municipal taxes. Therefore, the purpose of a Cashflow Reserve is to recognize that the taxpayer requires a modest amount of cashflow to ensure that regular expenses for Basic Living Necessities can be paid when required, and to provide a modest level of financial resiliency to meet irregular expenses for Basic Living Necessities as well as general increases in the cost of living as they occur over the year. In this regard, it is important to remember that the taxpayer is living in ‘extreme poverty’. When viewed in this context, a Cashflow Reserve can be considered a necessity of living, in and of itself. Thus, the money in the Cashflow Reserve cannot be considered available to the taxpayer payment of municipal taxes.

How should the quantum for a Cashflow Reserve be calculated?

117Given the priority of payment of municipal taxes over other debts, the quantum should be modest. Furthermore, the reserve should be based on family size, and should be objectively calculated to ensure that a consistent approach is applied in each case.

118In light of the above considerations, the Board finds that a reasonable quantum should be 10% of: the MBM Total Cost value for the region and family size that is applicable to the taxpayer including a further upward adjustment of this value where the taxpayer's total home ownership costs exceed the MBM shelter cost. Ten per cent of this amount equates to the total cost of Basic Living Necessities for a period that is one day shy of five weeks. If the taxpayer can afford to maintain a cash balance up to this amount, this would provide a modest cashflow resiliency to ensure an ability to pay for Basic Living Necessities on a month to month basis.

119On the one hand, some may argue that this quantum should be higher. The Board acknowledges that the taxpayer would, for the most part, still be living 'hand to mouth', as the taxpayer is living in 'extreme poverty'. However, as the Board has noted earlier, the s. 357(1)(d.1) exemption from paying municipal taxes is not intended to generally prevent the condition of poverty. Instead, it is to provide a specific isolated measure of relief where 'extreme poverty' exists.

120On the other hand, some may argue that this quantum should be lower, pointing out that, for larger family sizes, the quantum of the cashflow reserve could be as high as the municipal taxes payable. However, it must be remembered that the Cashflow Reserve is only considered, when the taxpayer’s family income qualifies as ‘extreme poverty’, i.e. the taxpayer’s income is sufficient only to purchase 75% of Basic Living Necessities. As such, the taxpayer is always financially struggling to pay for the costs of basic survival. For example, a purchase of adequate clothing, may result in insufficient funds to pay for food. In this context, a modest Cashflow Reserve is an essential necessity to provide the taxpayer with some financial flexibility to manage in such difficult financial circumstances.

121Finally, in making the above finding, there are two important observations. First, the Cashflow Reserve is not cumulative year over year. Second, the Cashflow Reserve only exempts a limited amount of the taxpayer's liquid assets from consideration. The Board must still consider whether the taxpayer has equity in other assets that the taxpayer can liquify in order to pay municipal taxes.

When is the Board required to address the ‘unable to pay’ qualification criterium?

122The Board has found that ‘extreme poverty’ and ‘unable to pay’ are separate qualification criteria in the legislative test under s. 357(1)(d.1). In other words, the taxpayer applying for relief under this section must meet both qualifications. As the wording of this section is “unable to pay due to extreme poverty” (emphasis added), this indicates that if the taxpayer does not meet the ‘extreme poverty’ qualification, then there would be no need to consider whether the taxpayer is ‘unable to pay’.

123In summary, the Board observes that, if the taxpayer’s Disposable Income does not qualify as ‘extreme poverty’, then it is unnecessary to subsequently consider whether the taxpayer can liquidate equity in any capital assets or saving/investment accounts owned by the taxpayer.

Relevance of Debt payments

124Past Board decisions approached s. 357(1)(d.1) by first determining whether there was an ability to pay, without the additional benefit of having reference to a an objective standard of what constitutes ‘extreme poverty’. Consequently, in determining ‘unable to pay’, hearing members would examine actual monthly living expenses and debt payments in detail. For the following reasons, the Board finds that it is no longer necessary to do so.

125The Board has now identified an objective standard of what constituted ‘extreme poverty’, i.e. the EPICs. This definition of ‘extreme poverty’, by definition, means that the taxpayer’s Disposable Income will only pay for 75 per cent of a modest basic standard of living. Consequently, there is no need to examine how the taxpayer spends this income (even if the taxpayer has made ill-considered expenditures), because the income is insufficient to pay for all Basic Living Necessities.

126Regarding the taxpayer’s debts in particular, the Board has already pointed out that payment of municipal taxes take priority over all other debts, other than debts owing to the Crown. In this regard, it should also be noted that municipal taxes pay for essential services that can be also considered a Basic Living Necessity – garbage collection, and sewer and road maintenance to name a few. While a taxpayer, who is in ‘extreme poverty’, may struggle with debt management, it is clear that the obligation to pay municipal taxes takes priority and, therefore, must be paid before other consumer debts. Therefore, other consumer debts are generally not considered when determining whether the taxpayer is ‘unable to pay’ municipal taxes.

127However, there is one exception, the taxpayer’s total debt load may be relevant when considering whether a taxpayer is able to liquify equity in an asset by borrowing, because a taxpayer’s total existing debt load is generally considered by financial lenders when deciding whether to approve a loan application.

If municipal taxes have been paid, is this determinative that the taxpayer is able to pay?

128In some cases, a taxpayer may have paid the municipal taxes for the taxation year. For example, if the property is mortgaged, the terms of the mortgage may require that the taxpayer pay the municipal taxes, so it effectively becomes part of the taxpayer’s monthly/weekly mortgage payment. On its face, this would appear to indicate that the taxpayer is able to pay municipal taxes. While this is obviously a relevant consideration, the question remains: Is such payment determinative of an ability to pay? For the following reasons, the Board finds that the answer to this question is no.

129In addressing this question, the Board first observes that s. 357(1)(d.1) only refers to an ability to pay, not whether taxes have been paid. The Board also observes that s. 357(1) expressly includes consideration of a refund of taxes. Therefore, this section expressly contemplates that relief under s. 357(1)(d.1) may be provided where municipal taxes have already been paid.

130Furthermore, due consideration must be given to the fact that, ability to pay is addressed only after it has been established that the taxpayer is living in ‘extreme poverty’. In this context, payment of municipal taxes has been at the expense of the taxpayer’s ability to purchase Basic Living Necessities. As noted earlier in this Review Decision, the purpose of s. 357(1)(d.1) is to provide some relief from such financial hardship. This is a prime example of why ‘unable to pay’ must be considered in the context of ‘extreme poverty’. A taxpayer living in ‘extreme poverty’ is required to make difficult choices regarding his/her expenditures. The issue is not whether the taxpayer made the choice to pay municipal taxes or was contractually obligated to pay them. The issue is whether the taxpayer’s financial circumstances indicates that the taxpayer had an ability to pay municipal taxes based on those circumstances.

131In summary, this determination must be based on a consideration of the entirety of the taxpayer’s financial circumstances. Accordingly, the fact that the municipal taxes were paid, is not, in and of itself, determinative of ability to pay. While each case must be determined on its own merits, if a taxpayer is living in ‘extreme poverty’, it is likely that payment of the municipal taxes would have been at the expense of acquiring Basic Living Necessities. Acquiring Basic Living Necessities must take priority. Consequently, such circumstances would not indicate that the taxpayer was able to pay the municipal taxes, it only indicates that the taxpayer did pay them.

Summary - Application of the Extreme Poverty Test

132The best way to synthesize the Board’s findings is to apply them to a hypothetical example:

Application 2023 Taxation Year

Subject Property location and classification 123 Main Street, City of Toronto Residential

Property Owner(s) J. and M. Taxpayer ("the Taxpayers")

Municipal Taxes Payable $5,000

Family Residing at the Subject Property J. and M. Taxpayer and their six-year-old son

Relevant Values from the MBM and EPIC tables MBM Total Cost: $52,710 MBM Shelter Cost: $25,675 EPIC Level: $39,533

Disposable Income INCOME After tax employment income: $50,000 Inheritance received in 2024: $2,000

ADJUSTMENTS TO INCOME Child day care costs: $3,000 Shelter cost adjustment (a) Actual shelter cost (mortgage interest, heat, hydro, water, home insurance): $32,000 (b) Applicable MBM Shelter Cost: $25,675 Adjustment [ (a) - (b)]: $6,325

DISPOSABLE INCOME: ($50,000 + $2,000 - $3,000 - $6325) = $42,675

Determine if the Taxpayers meet the Extreme Poverty Qualification Comparing the Taxpayers’ Disposable Income $42,675 to the applicable EPIC level of $39,533, indicates that the Taxpayer's income is $3,142 above the Extreme Poverty Income Cut-off. However, payment of the full $5,000 of municipal taxes would reduce the Taxpayer Disposable Income below the EPIC level. Consequently, the Taxpayers would be required to pay $3,142 of municipal taxes, to bring the taxpayer's Disposable Income to the EPIC level. With this required payment, the Taxpayers then meet the 'extreme poverty' qualification criterium. The Board would then proceed to determine whether the taxpayer is 'unable to pay' the remainder of municipal taxes ($5,000 - $$3,142= $1,858)

Taxpayer's Assets Bank Chequing Account: $2,000 Subject Property Assessed Value: $600,000 Outstanding year-end mortgage balance: $400,000

Taxpayers' Debts $4,000 credit card debt at year end

Allowable Cashflow Reserve MBM Total Cost ($52,710) + Taxpayer's Shelter Cost Adjustment ($6,325) = Adjusted MBM Cost ($59,035) Cashflow Reserve = Adjusted MBM Cost x 10 % = $5,903.

Determining if the Taxpayers are unable to pay the remainder of municipal taxes The Taxpayers' only liquid asset is their bank chequing account balance. The balance in this account is less than the Allowable Cashflow Reserve, so this liquid asset is not considered. The only other asset the Taxpayers own is the Subject Property. While they have $200,000 equity in their home, absent evidence to the contrary, there is insufficient evidence that they would be able to obtain a loan secured by the Subject Property, given their Disposable Income, and existing (credit card) debt load. Final conclusion: the Taxpayers are unable to pay the remaining amount of the municipal taxes owing. Therefore, the Taxpayers would be exempt from paying $1,858 of the municipal taxes owing.

133Attached as Schedule A to this Review Decision are the three tables referenced in the above example, (MBM Total Costs, MBM Shelter Costs, and the EPIC).

Issue 1 - Did the Hearing Member make a significant error of law or fact?

134As noted earlier in this Review Decision, the Hearing Member relied on M. M. U. stating that taxpayers applying under s. 357(1)(d.1) are required to make use of the resources available to first address their expenses relating to the necessities of life and to maintaining their property. The Board has found that this definition of ‘unable to pay’ is incorrect, as it is necessary to consider if the taxpayer meets the ‘extreme poverty’ criterium. On this basis, the Board finds that the Hearing Member made a significant error of law.

135The Board further finds that, even if the Board considered the test set out in the A.M. Decision, the Hearing Member did not apply this test. Instead, the test articulated by the Hearing Member is that: (i) the Applicant did “not cut from the necessities of life as he wanted to”, and (ii) this indicates that “the Applicant is not in a negative situation when it comes to poverty.” As such, the Hearing Member considered taxpayer conduct, which the Board, in this Review Decision, has found is not a relevant consideration. Furthermore, even if one applied the test as set out in the A.M. Decision, this decision does not require that a taxpayer reduce his/her expenditures on necessities of life. Furthermore, the test, as set out in s. 357(1)(d.1) is ‘unable to pay’, not whether the taxpayer is in a “negative situation when it comes to poverty”.

136Apart from these errors, there are two further evidentiary errors. In the Request for Review, M.A.N. indicates that, under the Federal Home Buyer’s Plan, M.A.N. was permitted to withdraw $35,000 from M.A.N.’s RRSP to purchase the Subject Property. Under the terms of this Plan, M.A.N. must return this amount to the RRSP, in annual installments. The 2023 Notice of Assessment issued by the Canada Revenue Agency confirms this amount is $2,333 (approximately $200 per month). The Decision does not include this debt in the Table of Expenses. Also not included as a debt, is the interest payable on M.A.N.’s Line of Credit account. The failure to consider these relevant debts is an error of fact.

137In conclusion, the Board finds that applying the wrong legal test is a fundamental deficiency and constitutes a significant error of law.

Issue 2 – If so, would the Board likely have reached a different decision?

Background

138As noted above, the Decision states that M.A.N.’s monthly income is $2,725.47 (annual $32,700), derived mostly from self-employment and rents generated. The Decision does not provide any further explanation of the evidence on which the Hearing Member relied to arrive at her finding of the quantum of M.A.N.’s monthly income. This deficiency has necessitated that the Board review the evidence M.A.N. submitted in support of M.A.N.’s application.

139In this Request for Review, M.A.N. states that the Subject Property was rented for only three months of 2023. The Decision does not address whether the stated monthly income was based on gross income, or income net of expenses. Even more problematic, M.A.N. has not stated the amount of the rent received.

140Statements were filed for M.A.N.’s Chequing Account and Line of Credit. Regarding the Line of Credit, the statement shows that the balance owing at the beginning of 2023 was $6,994.46, and additional sums were borrowed and transferred into M.A.N.’s Chequing Account during the year. So, at year end, the balance owing on the Line of Credit was $17,042.57.

141Regarding other deposits to the Chequing Account, there were a number of deposits earlier in the 2023 which appear to be employment income, totaling approximately $6,700. So, this appears to be consistent with Canada Revenue’s 2023 Notice of Assessment. It does not appear that rental income for the first three months of 2023 were deposited into the Chequing Account. Furthermore, on October 10th, M.A.N. deposited $18,000 into the Chequing Account, and, on November 27th, an additional $4,500 was deposited. There is nothing in the evidence filed to explain the source of the funds for these two significant deposits which total $22,500.

142Regarding M.A.N.’s disposable income, M.A.N. included the 2023 Notice of Assessment, which states that M.A.N.’s income for the year was only $6,944. If the $22,500 is in addition to this amount, then his total disposable income would be $28,994.

Application of the Legal Test

143The relevant values for consideration of whether M.A.N. meets the ‘extreme poverty’ qualification are:

1. MBM Total Costs for 1 person living in Hamilton: $28,767

2. MBM Shelter Cost: $22,913

3. Extreme Poverty Income Cut-Off for 1 person living in Hamilton: $22,824

144The evidence M.A.N. adduced respecting M.A.N.’s annual shelter costs, as noted in the Decision, are as follows:

1. Mortgage Interest: $27,008

2. Hydro/water: $1,200

3. Home Insurance: $2,232

4. Water Heater Rental: $329

5. Natural Gas: $1065

M.A.N.’s total annual shelter cost is $31,834. Therefore, this total shelter cost is $31,834 - $22,913 = $8,921 higher than the MBM shelter cost value.

145Accordingly, M.A.N. disposable income, assuming it includes the $22,500, must be adjusted: $28,994 - $8,921 = $20,073.

146Comparing M.A.N.’ disposable income ($20,073) to the relevant EPIC level of $22,824, indicates that M.A.N. would meet the extreme poverty qualification criterium. Obviously, if this disposable income is lower than assumed, then M.A.N. would also qualify.

147Accordingly, it is necessary to consider the next step, i.e. whether M.A.N.’s assets indicate that M.A.N. has an ability to pay the municipal taxes. In this regard, M.A.N. is entitled to maintain a cashflow reserve of 10% of the applicable MBM Total Cost value, which, in this case, is $2,876.

148Regarding M.A.N.’s capital assets, M.A.N. has:

1. Bank Account: A year-end chequing account balance of $7,421.09;

2. Subject Property: In this Request for Review, M.A.N. states that the property was purchased for $550,000 with a $70,000 downpayment, $35,000 of which was borrowed from M.A.N.’’s RRSP under a Federal Homebuyer’s Plan. In summary, M.A.N.’s equity in the Subject Property is approximately $51,000 (Purchase Price of $535,000 less year end mortgage balance owing of $484,000).

3. The Mexico Property: The evidence is that M.A.N. is in the process of purchasing this property, in which he asserts there is no equity because he is still in the process of purchasing the property over a 10 year payment contract.

4. Registered Retirement Savings Plan: In M.A.N.’s financial statement filed in evidence, the value for RRSP is left blank, suggesting that M.A.N. has no RRSP balance after withdrawing $35, 000 under the Homebuyer’s plan, an amount which must be repaid. The evidence that the current amount to be repaid is $32,667, so the balance in the RRSP would be $2,333.

149This evidence indicates the following. M.A.N. cannot liquidate equity in the Subject Property – it is already heavily mortgaged and M.A.N.’s debts and income level do not suggest that he could re-finance to liquify equity in this property. Regarding the Mexico property, there is similarly no evidence that he has an equity in this property, or, if there is, that he could liquidate this equity. Regarding the RRSP, there is a balance of $2,333, but, given the repayment requirement, there is no indication that he could withdraw this balance.

150The remaining asset is M.A.N.’s bank account. This is a liquid asset. Deducting the cashflow reserve of $2,876 from the year end balance of $7,421.09, leaves a balance of $4,545.09 ( $7,421.09 - $2,876 ) available to pay municipal taxes of $2,407.77. This indicates that M.A.N. is able to pay the full amount the municipal taxes owing.

151Alternatively, if one assumes that the $22,500 was borrowed funds, this loaned amount must have been secured against M.A.N.’s assets, and, consequently, can be characterized as liquified equity. M.A.N.’s income of $7421 plus $22,50 = $29,921. This amount exceeds the EPIC level of $21, 575 by $8,346, so M.A.N. clearly could pay for Basic Living Necessities up to the EPIC level, and still have $8,346 in cash funds. Deducting the Cashflow Reserve would still leave sufficient funds for M.A.N. to pay the full amount of municipal taxes.

CONCLUSION

152In summary, even if it is assumed that M.A.N.’s income is only $6,944 as shown on his tax return, and, therefore, meets the extreme poverty qualification, M.A.N.’s asset holdings at year end, establishes that he had cash available to pay the full amount of the municipal taxes owing, while maintaining the allowable cashflow reserve. For this reason, the Board finds that, although the Hearing Member made a significant error of law, the Board, in applying the correct test, would not have reached a different conclusion, based on the evidence adduced.

153In making this finding, the Board recognizes that M.A.N. faced very difficult financial circumstances and was struggling to maintain ownership of the Subject Property, incurring an increasing significant debt load to do so. However, M.A.N. did receive a significant amount of cash deposited to his chequing account, and, as noted earlier in this Review Decision: (i) payment of municipal taxes takes priority over other debts, and (ii) s. 357(1)(d.1) only provides limited relief from financial hardship in specific circumstances.

154Based on the above analysis and findings, the Board dismisses M.A.N.’s Request for Review.

ORDER

155M.A.N.’s Request for Review is dismissed.

"Dirk VanderBent"

DIRK VANDERBENT

VICE-CHAIR

Assessment Review Board

Website: www.tribunalsontario.ca/arb

Schedule A

MARKET BASKET MEASURE: TOTAL COSTS BY FAMILY SIZE - 2023

POPULATION / REGION	1 person	2 persons	3 persons	4 persons	5 persons
Under 30,000	$25,518	$36,088	$44,198	$51,036	$57,060
30,000 to 99,999	$24,678	$34,900	$42,744	$49,356	$55,182
100,000 to 499,999	$26,461	$37,422	$45,832	$52,922	$59,169
500,000 and over	$26,791	$37,888	$46,403	$53,582	$59,906
Ottawa-Gatineau	$28,445	$40,227	$49,267	$56,889	$63,604
Hamilton/Burlington	$28,767	$40,683	$49,826	$57,534	$64,325
Toronto Area: *Details shown below	$30,432	$43,037	$52,710	$60,864	$68,048

POPULATION / REGION	6 persons	7 persons	8 persons	9 persons	10 persons
Under 30,000	$62,506	$67,514	$72,176	$76,554	$80,695
30,000 to 99,999	$60,449	$65,292	$69,800	$74,034	$78,039
100,000 to 499,999	$64,816	$70,009	$74,843	$79,383	$83,677
500,000 and over	$65,624	$70,882	$75,776	$80,373	$84,721
Ottawa-Gatineau	$69,675	$75,257	$80,453	$85,334	$89,949
Hamilton/Burlington	$70,464	$76,110	$81,365	$86,301	$90,969
Toronto Area: *Details shown below	$74,543	$80,516	$86,075	$91,296	$96,234

MARKET BASKET MEASURE: SHELTER COSTS - 2023 Based on the cost of a three-bedroom nonsubsidized rental unit (includes utilities, appliances and insurance)

POPULATION / REGION	COST
Under 30,000	$14,938
30,000 to 99,999	$15,362
100,000 to 499,999	$19,132
500,000 and over	$19,859
Ottawa-Gatineau	$22,342
Hamilton/Burlington	$22,913
Toronto Area: *Details shown below	$25,675

EXTREME POVERTY INCOME CUT-OFF VALUES (AFTER TAX INCOME) 2023 TAXATION YEAR

POPULATION / REGION	1 person	2 persons	3 persons	4 persons	5 persons
Under 30,000	$19,139	$27,066	$33,149	$38,277	$42,795
30,000 to 99,999	$18,509	$26,175	$32,058	$37,017	$41,387
100,000 to 499,999	$19,846	$28,067	$34,374	$39,692	$44,377
500,000 and over	$20,093	$28,416	$34,802	$40,187	$44,930
Ottawa-Gatineau	$21,334	$30,170	$36,950	$42,667	$47,703
Hamilton/Burlington	$21,575	$30,512	$37,370	$43,151	$48,244
Toronto Area: *Details shown below	$22,824	$32,278	$39,533	$45,648	$51,036

POPULATION / REGION	6 persons	7 persons	8 persons	9 persons	10 persons
Under 30,000	$46,880	$50,636	$54,132	$57,416	$60,521
30,000 to 99,999	$45,337	$48,969	$52,350	$55,526	$58,529
100,000 to 499,999	$48,612	$52,507	$56,132	$59,537	$62,758
500,000 and over	$49,218	$53,162	$56,832	$60,280	$63,541
Ottawa-Gatineau	$52,256	$56,443	$60,340	$64,001	$67,462
Hamilton/Burlington	$52,848	$57,083	$61,024	$64,726	$68,227
Toronto Area: *Details shown below	$55,907	$60,387	$64,556	$68,472	$72,176