The Vacant Home Tax is a new measure taken by the City of Toronto to address the lack of available housing for Toronto residents. Following the lead of Vancouver, the City hopes this measure will increase the amount of units available for its residents, while increasing cash flow for housing initiatives. To better understand the implications of the Vacant Home Tax on your property (or properties), the first step in protecting your investment may be through speaking with a lawyer.
What is vacant home tax?
Recently passed legislation requires Toronto homeowners to declare the status of their property. The tax is a policy measure made to address the current lack of housing throughout the City. Legislators believe that levying a tax against owners of vacant residential properties will encourage them to either rent out their units or otherwise sell the property which by extension would increase the available residential properties in the City.
The vacant home tax is a form of speculative tax, expected to bring in over $55 million annually to the City of Toronto, with that money being directed towards affordable housing initiatives. Experts are split on how effective the tax will be at addressing its goal of making more homes accessible to Torontonians. While the monies being raised serve as an effective tool in curtailing the number of vacant properties across the City, many believe that the best course of action is of course, to build more homes.
Therefore, the question becomes, what is a vacant home? According to the City of Toronto By-law 97-2022, a vacant home is a “Residential unit if for more than six months during the Taxation Year, no Self-Contained units comprising the Residential Unit are either:
- The principal residence of the owner or another Occupant; or
- Occupied for residential purposes by one or more Tenants in aggregate for at least six months of the year”.
In plain English, vacant homes are those that aren’t principal residences AND are left unoccupied for six months or more in a year. The six-month requirement is counted on an aggregate basis; therefore, you do not need to have the same tenant the entire time; two separate leases of 3 months is sufficient to prevent the tax from being levied.
Is the vacant home tax only in Toronto?
The Toronto Vacant Home Tax is derived from both the Federal and British Columbia Underused Housing Tax. Starting in 2017, Vancouver instituted a residential vacancy tax which has claimed to have reduced the number of vacant properties in the city by 36%. This success has led to other cities in B.C. adopting this tax, and with municipalities like Ottawa and Toronto enforcing similar legislation to address their housing markets.
How much is the vacant home tax?
The tax varies by municipality. In Toronto, the tax will be 1% of the property’s current value assessment. The tax applies to properties based on their declared status for the previous year. For example, your property was vacant in 2022, and has a current value assessment of $1,000,000. Based off these variables, at a rate of 1%, you will be required to pay an additional sum of $10,000 in property taxes in 2023. This is done in 3 separate installments in concurrent months, typically May through July.
Do I have to declare a vacant home?
All properties within Toronto and Ottawa will require a declaration to be filed. For Toronto, while the application for property status in 2022 was due in February 2023, the City has stated that declaration regarding the occupancy of properties for 2023 will be made available online in the Fall of 2023. Property owners are required to declare their occupancy status, as a failure or false declaration may result in fines ranging from $250 – $10,000.
How do I declare occupancy status?
Declarations require the 21-digit assessment roll number and customer number from the property’s tax bill or property tax statement. Property owners should use this information and declare their property’s status through the City’s secure online portals – should an error in the declaration arise, individuals may submit a new declaration prior to the deadline, or file a Notice of Complaint if the deadline has passed.
What are the property status types?
The City of Toronto has identified 5 different occupancy statuses:
- Occupied as principal residence of homeowner;
- Occupied as principal residence of a permitted occupant;
- Occupied as a tenanted property;
- Vacant with an eligible exception; and
- Vacant or deemed/determined to be vacant.
The first four occupancies are not subject to the Vacant Home Tax. Thus, if you reside in your own home, at your friend’s property with their explicit permission, as a tenant, or meet the criteria for an exception, you will not be subject to the 1% tax on your property. Summarily, if you declare the property to be vacant, if no response is received, if it is found that the declaration was fraudulent, if no exception is granted, or if the City is otherwise capable of determining that the true occupancy status of the property is vacant, the tax will apply.
What are the exceptions to the vacant home tax?
Property owners and landlords may fear that this tax will force them to sell or otherwise refinance their properties as a result of the imposition of this tax. While not every landlord will be spared, a significant amount of property owners across Toronto will be able to apply for some form of relief through the listed exceptions.
To date Toronto has provided 7 classes of exception to the Vacant Home Tax:
- Death of a registered owner
- Repairs or renovations
- Principal resident is in Care
- Transfer of legal ownership
- Occupancy for full-time employment
- Court order
Death of an Owner
In this case, heirs are required to provide a copy of the death certificate. Thus, if a property was vacant for six months or more in the previous year due to the owner’s death, the tax will not apply. This is a one-year exception – should the property not be sold, disposed of, or otherwise converted so as to meet a different criteria of occupancy status or exception, the tax will be applied.
Repairs or Renovations
Proving this requires documentation describing the type of project that is preventing occupancy. This can be done through copies of building permits which have been issued related to the repairs and renovations. Furthermore, the City requires that three more conditions be met. First, that the occupation and normal use of the property is prevented by the aforementioned repairs or renovations. Second, that all necessary permits have been issued. Lastly, the City’s Chief Building Official is of the opinion that the repairs or renovations are being carried out without unnecessary delay.
Principal Resident is in Care
Similar to that of a death of the principal resident, family members or representatives of the owner must provide the City with a signed letter from a health care facility.
This exception is distinct from the previous death exception because it can be applied to two consecutive taxation years. Therefore, if the principal resident is in a long-term health facility or is otherwise in ailing health that results in the home being vacant for periods exceeding six months of a taxation year, the tax will not be applied. Should this issue be prevalent for a period exceeding the listed two-year exemption, it is highly recommended that you speak to a Lawyer or Tax professional to protect your estate from additional property taxes.
Transfer of Legal Ownership
Purchasing a property and then being immediately subjected to a tax would seem predatory, and the City of Toronto agrees upon delivery of a copy of the land transfer deed. So long as the purchase was closed during the taxation year, with 100% of the interest being transferred, the tax will not apply except in instances where the lone action is a name change, adding a second owner, or removing an owner.
Occupancy for Full-Time Employment
Specifically for Toronto property owners, proof of residency outside of the GTA is required, in addition to a signed letter from your place of work.
If the vacant property is required for employment purposes for a total of at least six months in the taxation year, by its owner whose principal residence is outside of the GTA, the tax will not be applied.
Court Order
If a copy of the court order is provided that is currently in force which prohibits occupancy of the vacant property for at least six months of the taxation year, the property is exempt.
Will the Tax apply to me?
If you are an ordinary homeowner, it will most likely not. Additionally, this is not a province-wide measure. Since it is only being actively applied in Toronto and Ottawa, owners of vacant properties are not guaranteed to be at risk just yet. Furthermore, cottages and other properties owned by Torontonians are not subject to the tax, regardless of whether occupied for 6 months of the year or not. However, it would come as no surprise to see other municipalities follow suit by instituting the Vacant Unit Tax, such as Hamilton that has announced that the declaration for property status will commence for the 2023 taxation year.