Ontario Proposes Regulation to Exempt Certain Applications from Inclusionary Zoning in Toronto, Mississauga and Kitchener

On January 12, 2026, the Province of Ontario published a proposal for a new regulation that would substantially expand the scope of projects that are exempt from inclusionary zoning (IZ) obligations in Toronto, Mississauga and Kitchener. The regulation, if implemented as proposed, would exempt projects for which a complete zoning, site plan or building permit application is filed with the applicable municipality on or before July 1, 2027 from obligations to provide affordable housing pursuant to an IZ by-law.

The proposal indicates the proposed regulation arises from concerns that implementing IZ at this time, given existing market conditions, could have a negative impact on overall housing supply.

The regulation, if made, would affect both in-progress applications and those not yet filed.  Projects in Toronto, Mississauga and Kitchener for which a complete zoning, site plan or building permit application has already been filed would not be subject to IZ obligations (provided a building permit is not obtained before the new regulation is filed). Further, the July 1, 2027 deadline provides an opportunity for landowners to submit an application prior to that date to benefit from the exemption.

The proposal is open for comment on the Ontario Regulatory Registry until January 19, 2026.

Current Status of IZ

IZ is a form of zoning that requires the inclusion of affordable housing units as part of developments containing market-rate units. As outlined in our previous Goodmans Updates on the topic¹, the legislative and regulatory framework for IZ has been in place in Ontario for some time. Under that framework, municipalities can only require affordable housing within protected major transit station areas (PMTSAs) or certain development permit system areas.

Toronto, Mississauga and Kitchener have each adopted official plan amendments and by-laws to implement IZ within their PMTSAs. IZ has been in effect in certain PMTSAs in Mississauga since 2024 and in Toronto since August 2025. Kitchener’s IZ framework, though previously deferred in light of challenging market conditions, took effect on January 1, 2026.

Existing Transition Provisions

The existing regulatory framework already includes certain exemptions and transition provisions that have the effect of making IZ inapplicable to certain projects. At the provincial level, O. Reg. 232/18 exempts (among others) projects where a zoning application along with a subdivision or condominium application was filed before the municipality adopts its IZ official plan policies, or where a building permit, community planning permit or site plan application is made before the municipality adopts its IZ by-law. 

Each municipality also included certain exemptions in their IZ policies and by-laws:

• Under Toronto’s IZ by-law, projects are exempt if a complete site plan application was filed on or before the date the Minister approved the applicable PMTSA² - which is August 15, 2025, for areas where IZ is currently in effect. A zoning application filed before this date without a corresponding site plan application would not qualify for the exemption.
• Mississauga’s IZ by-law similarly exempts projects for which a complete zoning application was submitted before the date of PMTSA approval, but only if a site plan application is filed within two years.
• In Kitchener, submission of a subdivision, condominium, building permit or site plan application before the IZ by-law took effect would exempt the project from IZ; however, submission of a zoning amendment application would not.

The Proposed Regulation

The proposal, if implemented, would expand the universe of projects exempt from IZ both in terms of the type of application that would qualify and when such an application would need to be submitted.

First, by exempting projects based on the submission of a complete zoning, site plan or building permit application, the effect of the proposed regulation is that a zoning amendment application alone would suffice to attract protection from IZ requirements. This would be more generous than existing transition provisions.

Second, by exempting projects for which a complete zoning, site plan or building permit application is filed on or before July 1, 2027, the proposed regulation would exempt in-progress projects that did not meet existing transition thresholds as well as new projects for which applications are not yet filed.

The proposed exemption would not apply to developments that have already obtained a building permit prior to the filing of the amendment to the regulation.  

The posting on the Ontario Regulatory Registry notes that market conditions have undergone a series of shifts that have negatively impacted housing starts and costs, including significant increases in interest rates and costs of construction. Given the strains on the market, the proposal notes that both developers and municipalities are finding that IZ is not viable under current economic conditions. Accordingly, the rationale for the proposed approach is that implementing IZ at this time could negatively impact overall housing supply.

Next Steps

As noted above, the proposal is open for public comment only until January 19, 2026, which may indicate an intention to implement the proposal quickly. We will continue to monitor the proposal as the process unfolds. In the meantime, for more information or for questions on implications for individual projects, please contact any member of our Municipal and Land Development Group.

¹ Ontario Enacts Inclusionary Zoning Regulation to Promote Affordable Housing (December 19, 2016); Ontario Enacts Overhauled Inclusionary Zoning Regulations (May 1, 2018); Toronto Releases Draft Instruments to Implement Inclusionary Zoning (October 14, 2021); Major Transit Stations Approved – With Major Implications (August 26, 2025).

² Toronto’s IZ by-law also exempts projects for which a zoning by-law amendment came into force prior to the passing of a Community Benefits Charge by-law, where an agreement was executed in accordance with Section 37 of the Planning Act on or before the date of the approval of the applicable PMTSA.