“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 re-elected Liberal party, led by Justin Trudeau, has implemented a tax on foreign-owned vacant properties that they passed in their budget before the September 2021 election. Toronto is one of the first cities in Canada to implement a vacant home tax as all residential property owners have received a notice stating “all residential property owners are required to declare the occupancy status of their residential property(s) annually.” Any owner that does not reply prior to February 2, 2023 will receive a fine. More jurisdictions seem to be following Toronto’s footsteps, as Hamilton is set to implement one beginning in 2024, and Peel is conducting public consultations to determine next steps of the implementation.
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.
The region of Peel is currently still in the process of collecting public consultations about their inputs on the level of public support, public policy implications, potential effectiveness of the tax in terms of increasing the supply of affordable housing, its impact on affordability, and privacy-related concerns. The results of the consultations will help them determine next steps and program design options of the implementation.
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 raise $55 to $66 million for the city.
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 is the Toronto Vacant Home Tax Declaration in Toronto?
Property owners in Toronto must annually now declare the occupancy status of the properties they own, even if they are currently living in the property.
This declaration will determine if the Vacant Home Tax will apply and needs to be paid.
The Vacant Home Tax is 1% of the Current Value Assessment (CVA) and applies to Toronto homes declared, deemed, or found vacant for over 6 months in the previous year. The tax is based on the property’s occupancy status in the previous year.
To declare, you’ll need your 21-digit assessment roll number and customer number from your property tax bill or statement. Declarations can be made through the City’s online portal or via a paper form. Incomplete paper forms will not be accepted. Owners of unoccupied properties may be subject to an audit.
Corrections to declarations can be made before the February 2 deadline or by filing a Notice of Complaint after the deadline. Failure to declare or making a false declaration may result in a fine of $250 to $10,000.
Some Exemptions exist where a property can be left vacant and the tax does not need to be paid:
|Eligible Exemption||Description||Supporting Documentation|
|Death of a registered owner||The property was vacant for six months or more in the previous year due to the death of an owner.||Copy of death certificate.|
|Repairs or renovations||The vacant property is undergoing repairs or renovations, and all the following conditions have been met: a) occupation and normal use of the vacant property is prevented by the repairs and renovations;|
b) all necessary permits have been issued for the repairs and renovations;
c) the City’s Chief Building Official is of the opinion that the repairs or renovations are being actively carried out without unnecessary delay.
|Description of the type of project preventing occupancy. Copy of building permits issued related to the repairs and renovations.|
|Principal resident is in care||The principal resident of the vacant property is in a hospital, long term or supportive care facility for at least six months during the taxation year. This exemption may be claimed for up to two consecutive taxation years.||Signed letter from health care facility on letterhead.|
|Transfer of legal ownership||You purchased your property with a closing in the taxation year being declared, and the sale involved a 100 per cent transfer of an interest in the property to an unrelated individual or corporation. This excludes name changes, adding a second owner and removing a second owner.||Copy of land transfer deed.|
|Occupancy for full-time employment||The vacant property is required for occupation for employment purposes for a total of at least six months in the taxation year, by its owner who has a principal residence outside of the Greater Toronto Area.||Proof of residency outside of Greater Toronto Area. Signed letter from employer on company letterhead or employment contract.|
|Court order||There is a court order in force which prohibits occupancy of the vacant property for at least six months of the taxation year.||Copy of court order.|
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.
Vancouver’s empty home tax has a similar structure of administration (declaring, audits, etc.) but increased to a tax rate of 5% in 2023 compared to 3% in 2021-2022. However, Vancouver and BC’s taxes are, of course, different – theoretically, someone could be exempt for both or have to pay both when the taxman comes knocking. Hence, a Canadian citizen may have to pay Vancouver’s 5% 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 markets – BC housing prices are still unaffordable for many people. 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.
The city of Toronto is estimating the tax will bring 66 million in revenue per year, which will be used to create affordable housing.