Development Charge Exemptions for Ontario ADUs Under Bill 23: What “Free” Actually Means for a Second or Third Unit
Yes, Bill 23 waives development charges on added units — but only up to the third unit, only under conditions tied to your ancillary structures, and only the development charge itself. Water hook-ups and permit fees keep coming. Here is where the line sits.
If I add a second or third unit to a detached, semi or rowhouse in Ontario, is it really development-charge-free?
If it qualifies, the development charge genuinely does get waived — but read two things carefully. First, the exemption has a hard edge: it covers up to three units per parcel, and the number of units in your ancillary structures (a unit over the garage, a garden suite) has to fit the conditions. Second, “no development charge” is not the same as “no cost.” The provincial waiver only removes the development charge, plus parkland dedication and the community benefit charge — municipalities can still bill water/sewer connection charges and building permit fees under separate authority. Anything past the third unit turns on your municipality’s own by-law.
Source: Development Charges Act, 1997, S.O. 1997, c. 27, s. 2(3.2)–(3.3) and s. 26 (as amended by Bill 23, Royal Assent 2022-11-28); verified 2026-08-01
I am Arthur Zhao, a full-time GTA broker for 12 years. When an investor sits across from me weighing whether to convert an older semi into a legal triplex, the make-or-break line item is almost never the drywall — it is the government charges, and specifically the development charge that can land on each new unit. Bill 23 is supposed to make those charges disappear for added units, and the word “free” gets thrown around a lot. It is partly true and partly a trap: the development charge does get waived, but only up to a third unit, only under conditions, and only for that one category of charge. The water and sewer bill for the new connection is a separate animal. Below I walk the statute through the way I walk a client through it — what is waived, what is not, what happens at unit four, and whether anything already paid comes back.
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The three fact patterns Bill 23 actually wrote into the statute
Bill 23 (More Homes Built Faster Act, 2022, Royal Assent 2022-11-28) amended the Development Charges Act, 1997 to waive the development charge on additional residential units. The core rule: on land where residential use is permitted, a detached, semi-detached or rowhouse gets its added units waived up to a maximum of three units per parcel. The statute splits this into two parallel provisions — one for houses that already exist, one for houses being built new:
• s. 2(3.2) — added units in an existing detached / semi / rowhouse;
• s. 2(3.3) — the same unit types in a new build.
And it does not stop at the development charge. For the same building types, within the same three-unit envelope, parkland dedication and the community benefit charge (CBC) are waived as well (Source: DC Act s. 2(3.2)–(3.3); Bill 23’s companion Planning Act amendments on parkland and CBC; verified 2026-08-01). Those three waivers together are the real relief, not any single line.
⚠️“No development charge” is a provincial-level waiver of three charge families — DC, parkland and CBC. For water and wastewater service, municipalities keep separate tools such as connection charges under the Municipal Act, and building permit fees still apply. Budget from your municipality’s actual fee schedule, not from the word “free.”
Second unit vs third unit: the conditions are not identical
💡 My honest read: the value anchor in this exemption is the phrase “up to three units per parcel,” not the word “free.” Stay at three or fewer, in the right building type, with ancillary-structure counts that fit, and the DC / parkland / CBC largely fall away. The moment your plan reaches for a fourth unit — or an ancillary layout that fails the test — switch out of “it’s free” mode and into “pull the municipal by-law and price every line” mode. Settle the unit count and structure first; only then argue about whether the numbers work.
“No development charge” is not “no cost”: waived vs still billed
Unit four and beyond: the provincial waiver does not stretch on its own
The Bill 23 waiver is written for the second and third unit — it backstops three units per parcel. If your municipality has zoned for a fourth (or more) unit as-of-right, that fourth unit exists because of the municipal by-law, not the provincial floor, and the provincial exemption text does not automatically reach it.
The good news is that some municipalities have widened the exemption above the provincial floor. Toronto, for example, exempts up to six units — the second through sixth unit in a development of up to six — effective 2025-07-24 (Source: City of Toronto development charges page, verified 2026-08-01).
So the practical rule is blunt: at three units or fewer, the provincial statute is enough; from the fourth unit up, go back to your own municipality’s DC by-law and confirm line by line. The same fourth unit can be free in Toronto and billed somewhere else — never treat one city’s by-law as the province-wide default.
ℹ️Municipalities can widen the exemption above the three-unit provincial floor (Toronto now reaches six units). When your project hits the fourth unit or beyond, confirm against your own municipality’s current DC by-law — do not port another city’s rule over.
Already paid a development charge — can you get it back?
This is the question people most want a “yes” to, so here is the mechanism first. Under DC Act s. 26, a development charge is determined and payable when the building permit is issued. Whether the exemption reaches your project therefore usually turns on whether your permit was issued after the exemption took effect:
• If your permit was applied for and issued after the exemption came into force, a qualifying unit should not have been charged a DC in the first place — and if it was, that is a correction to take up with the municipality;
• If the permit was issued before the exemption and the DC was lawfully paid at the time, there is generally no automatic refund — amendments run forward and do not claw back charges already validly collected.
The caveat matters: the exact in-force timing, transition rules, and each municipality’s handling can differ, and whether there is any correction or refund to pursue is fact-specific. If real money is on the line, do not settle it from this article — take your permit issuance date and payment receipt to the municipality’s DC department or a municipal real-estate lawyer. I can lay out the rule; what you can actually recover depends on your paperwork.
- Development Charges Act, 1997, S.O. 1997, c. 27 — s. 2(3.2)–(3.3) (additional residential unit exemptions) and s. 26 (timing), e-Laws
- Bill 23, More Homes Built Faster Act, 2022 (Royal Assent 2022-11-28), Legislative Assembly of Ontario
- City of Toronto — Development Charges (exemption widened to up to six units, effective 2025-07-24)
- Davies Howe LLP — Bill 23 Part 2: Increased Cost Certainty for Development-Related Charges (three-unit cap; parkland and CBC waived alongside)
Frequently Asked Questions
If I add both a basement apartment and a garden suite, are both development-charge-free, or only one?
It depends on your total unit count, not the form. Within three units per parcel, a unit in an ancillary structure (the garden suite) is inside the exemption alongside a unit in the main house — provided the ancillary-structure conditions in DC Act s. 2(3.2)–(3.3) are met and the parcel stays at three units or fewer. Line up “how many in the house plus how many in ancillary structures” and test that total against three (Source: DC Act s. 2(3.2)–(3.3), verified 2026-08-01).
Does the exemption also waive parkland dedication and the community benefit charge?
Yes — for the same building types within the same up-to-three-unit envelope, Bill 23’s companion Planning Act changes waive parkland dedication and the community benefit charge alongside the development charge. Those three waivers are the actual relief for added units (Source: DC Act s. 2(3.2)–(3.3); Davies Howe analysis, verified 2026-08-01).
The city still sent me a water and sewer connection bill for the new unit — is that allowed?
Generally yes. Growth-related water and wastewater costs are recovered through connection charges levied under the Municipal Act, which sit outside the development-charge waiver. So a hook-up bill can be legitimate even though the DC was waived. Check that the charge is a connection/service charge and not a re-labelled development charge on a unit that should be exempt.
Toronto lets me build four units as-of-right — is the fourth unit development-charge-free too?
In Toronto, yes, but because of Toronto’s by-law, not the provincial floor. The provincial Bill 23 waiver is written for the second and third unit only. Toronto separately widened its exemption to up to six units (second through sixth), effective 2025-07-24. Do not assume another municipality mirrors Toronto — confirm its own DC by-law (Source: City of Toronto development charges page, verified 2026-08-01).
Do I have to apply for the exemption, or is it automatic when the permit issues?
The exemption is a statutory carve-out, so a qualifying unit should simply not be assessed a development charge when the building permit is issued under DC Act s. 26 — you are not applying for a discretionary rebate. In practice, confirm at permit that the qualifying units were treated as exempt; if a DC appears on a unit that meets the test, raise it with the municipality before you pay.
Arthur Zhao
Real Estate Broker · FRI · ABR · SRS · PSA · MCNE · E-PRO · CLHMS & GUILD Elite · REAIS
VP & Branch Manager, Bay Street Group Inc.
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