October 8, 2026

Hard costs vs soft costs in an Ontario development budget

Hard costs are the cost of the building itself: the labour, materials and equipment the contractor puts in place, from excavation to the last light fixture. Soft costs are everything else the project has to pay for to get that building designed, approved, financed, insured and occupied: architects and engineers, permits, development charges, parkland and community benefits charges, legal, insurance, interest and the taxes that sit on top. Land is usually carried as a third line of its own. In Ontario the hard costs vs soft costs split matters more than most guides suggest, because the soft side carries government charges that can run to six figures per unit and that change often.

Every rate and section of legislation below was checked on October 7, 2026. Rates change, sometimes more than once a year, so check each against its source on the day you budget.

What counts as a hard cost

If it’s built, installed or physically changed on the site, it’s a hard cost.

• Site work: demolition, excavation, shoring, dewatering, backfill, grading, site servicing within the property line, paving and landscaping.
• Structure: foundations, the frame (concrete, steel or wood), floors and roof.
• Envelope: walls, cladding, windows, roofing, waterproofing.
• Interiors: partitions, doors, finishes, millwork, kitchens and bathrooms.
• Building services: mechanical, plumbing, fire protection, electrical, elevators.
• The contractor’s costs of running the job: general conditions (supervision, temporary facilities, cranes, winter protection), fee and bonds.

That last group is part of the hard cost even though none of it is left in the building, and it moves with the length of the job.

The best hard cost number is a measured estimate from the current drawings. Benchmarks are a check. Altus Group’s Canadian Cost Guide is widely used, and Altus’s April 2026 commentary on the 2026 guide reported that Toronto’s overall construction costs stabilized in 2025, with low-rise, mid-rise and high-rise residential costs declining over the year (Altus Group, 2026). If you’ve been handed an estimate and want to know how far to rely on it, our guide to reading a construction estimate walks through classes, exclusions and allowances.

What counts as a soft cost

Soft costs are the project costs that aren’t physically built into it, spread across many payees and the whole life of the project.

CMHC’s guide for housing groups, Project Costing and the Construction Process, frames it this way: capital costs include “‘hard’ costs like land and construction and ‘soft’ costs such as consulting and legal fees, permits, and financing costs” (CMHC). Note that CMHC puts land on the hard side. Most lenders and developers carry land as its own line, and we do below. What matters is that every dollar is in the budget once.

The typical lines for an Ontario project:

The percentage ranges for the soft side you’ll find online are rarely sourced, so we don’t repeat them. The best dated Canadian figures cover government charges alone. A 2019 study by Altus Group Economic Consulting for the Building Industry and Land Development Association found that government charges on new homes in the GTA represented 19.4% to 20.7% of new housing prices, against 14.9% to 15.9% in other Canadian urban areas (Altus Group for BILD, 2019). CMHC’s 2022 work on the same question found that, at the upper end, government charges “can represent more than 20% of the cost of building a home in major Canadian cities”, with the City of Toronto among the highest (CMHC, 2022). Both predate several rounds of change, so they give a sense of scale and don’t belong in a budget. The rest of the soft side has to be built line by line.

The Ontario soft costs that surprise owners

These lines most often arrive late or larger than expected. Each is set by statute or by-law, so each can be calculated early.

Development charges

Development charges are levied on new development to pay for the roads, transit, water, sewers, community centres and emergency services that growth needs (City of Toronto).

Toronto’s current rates, effective June 26, 2025, are set per unit by type and tenure (City of Toronto, DC rates pamphlet). A selection:

Council removed indexing for 2025 and 2026, so these rates haven’t moved since they took effect.

There’s a significant change pending. In July 2026 Council adopted an amendment to the development charges by-law setting time-limited reduced residential rates: $32,276 for a non-rental apartment of two or more bedrooms, $31,606 for a non-rental one-bedroom or bachelor apartment, and $19,320 for a two-bedroom rental apartment, among others (City of Toronto, Bill 1268). The reduced rates apply only where no building permit was issued before March 30, 2026, the first permit is issued within three years of a funding agreement with the Province taking effect, and the above-grade permit follows within the by-law’s time limit. They’re confirmed at occupancy; if a condition isn’t met, the difference is payable then. As of October 7, 2026, the City’s development charges page says the program is “subject to a Transfer Payment Agreement with the Province of Ontario” and that more information will follow once it’s received. Until that agreement is in place, budget at the current rates and show the reduction as a separate line you can release.

When development charges are paid. Under the Development Charges Act, charges on rental housing are paid in six equal annual instalments starting at the earlier of the occupancy permit and first occupation, and since November 3, 2025, when the Bill 17 changes took effect, non-rental residential charges are paid in full at occupancy rather than at building permit (Development Charges Act, 1997, s. 26.1). Toronto confirms that interest on rental instalments stopped accruing on that date (City of Toronto, Rental and Institutional DCs). Non-residential charges are still payable when the first building permit is issued (City of Toronto, DC overview). Put the real payment date in the cash flow, because it changes how much interest the loan carries. A municipality and an owner can also agree different timing in a section 27 agreement.

The rate can be locked early. The Act fixes the charge at the rate in force on the date of a complete site plan application, or a zoning by-law amendment application if there’s no site plan, provided the first building permit follows within 18 months of approval (s. 26.2). Since Bill 17, if the frozen rate plus any interest would be higher than the current rate, the lower one applies.

Exemptions and discounts. The Act exempts non-profit housing (s. 4.2), affordable units under a 25-year agreement (s. 4.1), inclusionary zoning units (s. 4.3) and certain additional units in houses and existing rental buildings (s. 2(3.1)–(3.3)). Purpose-built rental units get a statutory discount of 25% for three or more bedrooms, 20% for two and 15% for the rest (s. 26.2(1.1)). The figures in Toronto’s rental schedule are consistent with that discount already being applied, so don’t take it off a second time; confirm with the City for your units. Toronto also exempts the second to sixth unit in developments of up to six units, effective July 24, 2025 (City of Toronto, DC overview). On a new fourplex that can leave only the first unit’s charge, and an additional unit such as a garden suite is exempt under the Act; our garden suite cost guide covers the small-project version.

Education development charges are separate. In Toronto the City collects them on behalf of the Toronto Catholic District School Board: $3,893 per residential unit until December 2, 2026, then $4,193 from December 3, 2026, and $1.67 per square foot of non-residential GFA, rising to $1.77. They’re payable at the first above-ground building permit (City of Toronto, Education DCs).

Outside Toronto, regional charges are added to the local ones. Get each schedule, dated.

Parkland dedication and cash-in-lieu

Under section 42 of the Planning Act, a municipality can require land for parks, or a payment instead, as a condition of development: up to 2% of the land for commercial or industrial development and 5% in other cases. A by-law can set a higher alternative rate based on unit count (one hectare per 600 units for land, one hectare per 1,000 units for cash), capped at 10% of the land or its value on sites of five hectares or less and 15% on larger sites (Planning Act, s. 42). The requirement is fixed at the by-law in force on the date of the site plan application (or zoning amendment application), unless more than two years pass between approval and the first building permit, and the land is valued as of the day before the first building permit is issued. The Act exempts non-profit housing and additional units in houses, and leaves affordable and inclusionary zoning units out of the calculation.

In Toronto, the alternative rate applies only in the City’s Parkland Acquisition Priority Areas; elsewhere it’s the basic 5% and 2%. The payment is set by the City’s Corporate Real Estate Management through an appraisal triggered by the building permit application, which the City says takes four to eight weeks, and it’s due before the first above-grade permit (City of Toronto, Parkland Dedication).

Budget it from your own land appraisal and update it when the City’s arrives.

Community benefits charge

A community benefits charge applies to buildings of at least five storeys with at least ten residential units (Planning Act, s. 37). It’s capped at 4% of the land value as of the day before the first building permit (O. Reg. 509/20, s. 3). Toronto levies the full 4% under By-law 1139-2022, based on the appraised land value and collected when the building permit is issued, or as an in-kind contribution if Council accepts one (City of Toronto, Community Benefits Charge).

On a mid-rise site of under five hectares, that means parkland and the community benefits charge together can reach up to 14% of the land’s value, on top of development charges. That figure comes straight from the statutory caps, so it can be worked out before you agree a land price.

Building permit and application fees

Toronto’s building permit fee is the service index for the building type multiplied by the floor area in square metres. For 2026 the index is $18.56 per m² for multiple-unit residential buildings, $24.46 for finished office space and $20.77 for finished retail, with $56.33 added for each new residential unit, a $214.79 minimum, and $92.79 an hour where the schedule charges examination and inspection by time (City of Toronto, Building Permit Fees).

Application fees for rezoning, site plan and the Committee of Adjustment are set by separate City schedules. Our guide to the Committee of Adjustment in Toronto lists the 2026 minor variance and consent fees.

HST

Ontario’s HST is 13%: the 5% federal GST plus the 8% provincial portion (Government of Ontario). Who can recover it is a question to settle with your accountant before the pro forma goes to a lender.

• Commercial and industrial projects. A GST/HST registrant generally recovers HST on costs of its commercial activities through input tax credits, so HST is mostly a cash flow item.
• Homes for sale. The builder charges HST on the sale price, and buyers may qualify for new housing rebates.
• Purpose-built rental. A builder who rents out new residential units is generally treated as having made a “self-supply”, paying HST on the building’s fair market value when the first unit is leased or occupied (CRA, New Residential Rental Property Rebate). For qualifying purpose-built rental projects, the federal government rebates 100% of the GST or federal portion of the HST where construction begins after September 13, 2023 and before 2031 and is substantially completed before 2036 (CRA, GST/HST rebate for purpose-built rental housing). Ontario rebates the full 8% provincial portion on qualifying projects that begin construction between September 14, 2023 and December 31, 2030 and complete by December 31, 2035 (Government of Ontario). Both have eligibility conditions and have to be claimed.

The 2026 Ontario Budget proposes ending the provincial New Housing Rebate and New Residential Rental Property Rebate after an enhancement period that runs to March 31, 2027, and states that the provincial purpose-built rental rebate would not be affected (Ontario Budget 2026, Annex). It’s still a proposal. If your project depends on a rebate, carry it as its own line rather than netting it off.

Tarion and HCRA

New homes and condominium units built for sale have to be enrolled with Tarion before construction starts, and the builder and vendor have to be licensed by the Home Construction Regulatory Authority. Tarion says it’s a provincial offence to sell, agree to sell or begin construction of a home without them (Tarion, Licensing and Application Process). Enrolment fees are set by sale price, from $585 for a home up to $300,000 to $2,075 at $950,000 to $1,000,000 and $6,055 above $4,000,000, plus HST, effective September 1, 2025 (Tarion, Enrolment Fees).

Rental is different. Tarion’s bulletin for condominium projects says units the vendor keeps as purpose-built rentals are not eligible for statutory warranty coverage and don’t require enrolment (Tarion, Registrar Bulletin 10-C, 2022). Confirm the position for your own project with Tarion before taking the line out.

Contingency, escalation and financing: which side?

Contingency belongs on both sides, in separate amounts. A hard cost contingency covers design that isn’t finished and conditions on site that nobody can see yet. A soft cost contingency covers the consultant change you’ll need when the design develops, a second round of comments on a site plan, or a fee that rises before you pay it. Blending them into one number hides which one is being spent. Our guide on how much contingency is enough sets out how to size the hard cost side by design stage and how to track it as it’s used.

Escalation sits with the cost it applies to. Hard cost escalation carries the estimate from the date it was priced to the middle of construction, or later for packages bought late. Soft costs escalate by step: a development charge indexed again after a freeze, a parkland appraisal at today’s land value. Keep each with its own line.

Financing usually gets its own section. Interest during construction, lender and broker fees, the lender’s cost consultant, and mortgage insurance premiums on CMHC-insured loans are soft costs by nature, but most lenders want them shown separately because they’re calculated from the rest of the budget. The interest depends on the cash flow, so a cash flow with the wrong payment dates or a shorter construction period than the contract carries the wrong interest.

The sides are linked. A longer schedule raises the contractor’s general conditions (hard) and the interest, taxes and insurance (soft). A larger building raises the hard cost and, through floor area and unit count, the permit fees and development charges.

How lenders read the hard and soft cost split

A construction lender wants the total cost to finish the project, and proof that the loan plus your equity covers it. The split matters to the lender in three ways.

The budget is reviewed line by line. Before the first advance, the lender’s cost consultant (often called the lender’s monitor or quantity surveyor) reviews the hard cost against its own data and checks whether the soft cost budget is complete. Our guide to construction financing in Ontario covers what the lender’s consultant reports on and how each monthly draw is certified.

Hard and soft costs are drawn differently. Hard costs are advanced against work in place: the contractor’s monthly progress claim, certified by the payment certifier, checked on site by the monitor, less the 10% holdback the Construction Act requires. Soft costs are advanced against invoices: the architect’s monthly fee, the permit receipt, the development charge payment. Some soft costs are spent before the loan closes at all (land, feasibility, design and approvals), and lenders commonly count those toward your equity. Keep the invoices and proof of payment from day one; you may need them to show what you’ve already put in.

Interest is usually funded from the loan. Many construction loans carry an interest reserve, a line in the budget that pays the loan’s own interest during construction. CMHC’s Apartment Construction Loan Program, for example, finances interest during construction from the loan itself (CMHC, ACLP Standard Rental Housing). If the schedule slips, that reserve runs down faster than planned, and the loan can go out of balance even though no hard cost has moved.

Building a development budget in the right order

Each step feeds the next: land value drives parkland and the community benefits charge, unit mix and tenure drive development charges, and the schedule drives interest.

1. Land. Purchase price, land transfer tax, closing legal, and the appraised value parkland and the community benefits charge will use.
2. The approvals path and the schedule. Which approvals the site needs and when the first building permit can realistically issue. Rate freezes and payment dates hang off these dates.
3. The building. Gross floor area, units by bedroom count, and sale or rent. Every government charge needs these.
4. The hard cost estimate. Measured from the current drawings, with its class stated, its exclusions listed and escalation carried to the midpoint of construction.
5. Government charges, from current schedules. Each with its date and source, and pending changes (like Toronto’s reductions) as separate lines.
6. Consultants and project management. Fee proposals, or allowances with the basis stated, for every discipline.
7. Insurance, legal, Tarion, marketing and leasing. Confirm which insurance the contractor carries in its price and which you’re buying.
8. HST. What you’ll pay, recover and claim back, settled with your accountant.
9. Contingency, by side. A hard cost contingency sized to the design stage and a separate soft cost contingency.
10. The cash flow and financing. Spend by month, the date of each large charge, the draw sequence and interest.
11. Test it as the lender’s consultant will. Is every line sourced and dated? Does the schedule in the cash flow match the contract? Is anything in twice, or not at all?

It’s the discipline we describe in the budget that matters most is the first one.

A worked example of the arithmetic

To show how the steps connect, take a hypothetical six-storey, 60-unit purpose-built rental building in Toronto with 5,000 m² of floor area: 40 two-bedroom and 20 one-bedroom apartments, on a site of under five hectares. It shows the arithmetic only, so the land value is left as a letter.

• Development charges at the City’s current rental rates: 40 × $48,299 plus 20 × $33,497, or $2,601,900, paid in six annual instalments from occupancy.
• At the proposed reduced rates, if the conditions are met: 40 × $19,320 plus 20 × $20,098, or $1,174,760.
• Education development charges: 60 × $3,893, or $233,580, at the rate in force until December 2, 2026, rising to $251,580 at the rate from December 3.
• Building permit fee: 5,000 × $18.56 plus 60 × $56.33, or about $96,180, before any hourly charges.
• Community benefits charge: 4% of land value L, because the building is six storeys with more than ten units.
• Parkland: 5% of L outside a Parkland Acquisition Priority Area, or up to 10% of L inside one.

The two development charge lines differ by about $1.4 million, and the difference turns on a funding agreement and a permit date. Carry it separately with its conditions beside it.

Frequently asked questions

What are soft costs in construction?

Soft costs are the project costs that aren’t physically built into the building: design and engineering fees, approvals and permit fees, development charges, parkland and community benefits charges, legal, insurance, marketing, property taxes during construction, financing costs and non-recoverable HST. They’re paid to many different parties across the whole project, from feasibility to occupancy, which is why they’re the side of the budget most often underestimated.

Are development charges a hard cost or a soft cost?

A soft cost. They’re a government charge on the development, separate from the work the contractor builds. In Toronto they’re also among the largest soft costs on a residential project, so calculate them from the City’s current rate pamphlet by unit type and tenure, and put the real payment date in the cash flow: at building permit for non-residential, in full at occupancy for residential for sale, and in six annual instalments from occupancy for rental.

What percentage of a project are soft costs?

There’s no reliable single figure, and the ranges quoted online are rarely sourced. It depends on the building type, the municipality, the approvals path, tenure and the schedule. Government charges alone were estimated at 19.4% to 20.7% of new home prices in the GTA in a 2019 Altus Group study for BILD, before several rounds of change. Build your soft side line by line instead.

Where to start

Start with the lines you can calculate today: the development charges, parkland, community benefits charge and permit fees for your site, from the current schedules, with the date beside each one. Then put the real payment dates into a cash flow. That exercise often changes the conversation about land price, unit mix or timing, and those conversations are easier before the loan closes.

If you’d like an experienced hand to build or test a development budget before it goes to your board or your lender, our development management team does this work from land through to occupancy. Owners weighing outside help can also see what an owner’s representative costs in Ontario.