“Vacant home tax” has been a buzzword for politicians, Canada’s real estate community and the population at large for a few years now. The recently re-elected Liberal party, led by Justin Trudeau, plans to implement a tax on foreign-owned vacant properties that they passed in their budget before the September 2021 election. While the current Ontario provincial government, led by Doug Ford, has no current plans to institute a vacant home taxToronto is in the process of implementing a vacant home tax. More jurisdictions seem to be following Toronto’s footsteps, as Hamilton considers implementing one at a municipal level, and Peel is at a regional level. Ontario appears to be destined for a vacant home tax, whether done through Queen’s Park or not.

Places like British Columbia have had vacant real estate taxes for a few years now. Will the vacant home tax achieve its goal of reducing real estate prices? Where has the tax been sued before, and what were its results? This article will analyze the various proposals for vacant home taxes and look at places like BC, which have instituted such a tax to see how effective they can be.

Friendly reminder: Please speak to an accountant or tax professional when dealing with any potential taxes (be it on your property or personal income). This article provides information about taxes – not tax advice.

How do the proposed Vacant Home Taxes Differ?

Income taxes are prevalent worldwide at Federal, Provincial and State levels. Of course, the specific income tax in different regions varies in what percentage of income is taxed, and vacant home taxes can vary in the same way. On top of what percentage is taxed off the value of an empty home, how that tax is enforced can differ in numerous ways.

Peel’s proposed vacant home tax responds to an estimated 13 000 vacant units across the region. The tax, developed with the help of Ernst and Yonge, has the goal of encouraging owners to either sell vacant houses or rent them. Owners would have to report if a property is vacant, and if vacant, the municipalities of Peele would collect the vacant tax with property taxes. A 1% tax would net about $16.4 million a year, with the cost of administering the tax being $5 million annually.

In terms of enforcement, which would likely be a large percentage of the $5 million tax administration cost, staff would investigate homes suspected to be empty that were undeclared.

The Toronto vacant home tax follows a similar structure to the proposed one of Peele. The onus is on property owners to declare if a home is vacant each year, and the city will investigate possible homes suspected to be vacant. While the proposed Peele Region tax is still being developed, the Toronto vacant home tax seems to have more devices to tackle homeowners with vacant homes that have not declared their residences as such. On top of being subject to the tax, the city may subject non-declaring owners to various penalties and fines. Toronto’s tax is set at 1% and is predicted to rise to $55 to $66 million in taxes at a 1% vacancy rate in Toronto.

Overall, the much-discussed vacant home taxes in Ontario follow a similar structure of self-declaration and enforcement through auditing. The difference in Ontario’s jurisdictions is how much the tax is (with Peel considering a tax of 1-3%) and, as shown through Toronto, how they plan to reprimand homeowners who do not declare their vacant homes.

What was the effect of British Columbia’s vacant home tax?

BC’s vacant home tax (the “Speculation and vacancy tax”) turned three years old at the end of 2020. Like the goals of the proposed vacant home taxes in Ontario, BC implemented the tax to increase the affordability of real estate. Owners must declare if their home is vacant, and if vacant, the relevant tax rates apply.

The BC model differs from many of the proposed models in Ontario because the rate depends on one’s citizenship. After 2019, the tax rate stayed at 0.5% from its 2018 level for Canadian citizens and permanent residents who are not part of a satellite family. However, if you are a foreign homeowner or a satellite family, your tax rate will be 2% off the value of your home.

As BC’s tax is implemented by the province, it also works with Vancouver’s empty home tax. The taxes are, of course, different – theoretically, someone could be exempt for both or have to pay both when the taxman comes knocking. However, they have a similar structure of administration (declaring, audits, etc.) but come at a tax rate of 3%, meaning a Canadian citizen may have to pay Vancouver’s 3% tax and BC’s 0.5% tax for their empty home. If Ontario were to implement a vacant home tax on a provincial level, it would likely interact with the taxes of its municipalities like Toronto similarly.

In terms of effect, both taxes use their revenue to invest in housing initiatives, on top of their intended effect to deter empty houses. For the fiscal year 2020, BC raised $81 million for affordable housing programs. However, Vancouver and BC at large still remain seller’s marketsBC housing prices are still rising, with dwindling supply. So, evaluating the effectiveness of the taxes becomes a bit of a chicken or the egg situation – is the tax ineffective? Or would prices have increased even more without their implementation? One of the tax goals, to stop houses from being vacant, seems to be effective, with rental units increasing in metro Vancouver (but experts are divided on the taxes’ role in creating that increase of rental units).

A vacant home tax may be necessary for a stable and affordable housing market, but by no means is sufficient. A generous reading of the tax is that it is a certified revenue earner and helps increase rental vacancy but is insufficient to cool rising real estate prices. At its worst, it seems that the vacant home tax has no meaningful effect on the housing market but remains an effective revenue earner. Taxes will likely have to be used with supply increases and zoning reform to adjust the market properly. As the tax is implemented in Ontario, consumers should know that they are not a panacea but one tool in a toolbox to make real estate affordable.