All homeowners will need to declare the status of their property as part of an effort to crack down on real estate investors and improve housing

Letting a home sit empty in the middle of a housing crisis will now cost you, with the introduction of Toronto’s vacant home tax on January 1, 2023.

The tax was established in hopes of encouraging real estate investors to sell or rent their homes, instead of leaving them unoccupied. Just how big of a problem this is in the city is unknown, but it’s expected that this new tax will help fill in some of the blanks.

It’s the second measure this year aimed at cracking down on real estate speculation and improving Canada’s housing affordability crisis. A foreign buyer ban by the federal government came into effect on Jan 1.

The deadline to file the mandatory form to declare whether or not your property is empty is usually in February.

Here’s everything a homeowner needs to know about the new tax:

Background

In 2019, City Council asked for information related to the possible implementation of a vacant home tax in Toronto. At their December 2020 meeting, City Council asked City staff to develop key tax design features and administrative structures to support a vacant home tax program and to report back with a recommended design for a vacant home tax by the end of the second quarter of 2021, for tax implementation in 2022.

At its meeting on July 14-15, 2021, City Council approved the development and implementation of a vacant home tax in Toronto. At its meeting on December 15, 16 and 17, 2021, City Council amended the City of Toronto Municipal Code, adding Chapter 778, Taxation, Vacant Home Tax 

What is it?

This is a tax that will be due annually, started in 2023.

A property is considered vacant if it was not used as the principal residence by the owner(s) or any permitted occupant(s), or was unoccupied for a total of six months or more during the previous calendar year. Properties may also be deemed (or considered to be) vacant if an owner fails to make a declaration of occupancy status as outlined in the bylaw.

The goal of the City of Toronto’s Vacant Home Tax (VHT) is to increase the supply of housing by discouraging owners from leaving their residential properties unoccupied. Homeowners who choose to keep their properties vacant will be subject to this tax.

Though all homeowners are required to submit a declaration of occupancy status, the tax does not apply to:

• properties that are the principal residence of the owner
• properties that are the principal residence of a permitted occupant or tenant
• properties that qualify for an exemption

Councilor Brad Bradford, the chair of the planning and housing committee, said in an email that there is no “silver bullet” to fixing the housing crisis. Instead, it requires solutions that target “pressure points.”

“One of those pressure points is the residential properties sitting vacant across Toronto, which are intentionally not being used for their primary purpose: to provide a home,” he wrote.

The city’s rental market in particular is extremely tight, with many would-be buyers pushed into renting due to rising interest rates. Most of the recent supply has been investor-owned condos, as “we haven’t seen a lot in the way of purpose-built rental construction,” he added.

The new tax is intended to push investors towards renting or selling vacant homes. But they could just decide to pay the tax.

“If we see that the city of Toronto is making a lot of money off the vacant home tax it suggests that it hasn’t prompted people to change their behavior,” Mercer said.

“So it will be important for the city to be transparent about the revenue generation or lack thereof.”

How big of a problem are empty homes?

Casey Brendon, director, revenue services for the city, said in an email that they don’t know how many homes are empty.

Vancouver introduced a similar vacant home tax in 2017. According to a city report from late last year, the total number of vacant properties there is now 1,398, 36 per cent fewer properties than when the program launched.

Of the 1,755 vacant residential properties in 2020, 49 per cent were converted to occupied in 2021, the report added.

Staff have made some assumptions looking at Vancouver’s experience and estimate that the Vacant Home Tax could yield between$55 million and $66 million in (gross) tax revenue per year, according to Brendon. That’s assuming one per cent of Toronto’s housing stock is vacant.

What do owners need to do?

All homeowners need to declare the status of their property, even if it’s not vacant. Owners should have received a form in the mail. But they can also declare online, or print out the form and send it in.

The city notes on its website: “a property is considered vacant if it is not used as the principal residence by the owner(s) or any permitted occupant(s), or if it was unoccupied for a total of six months or more during the previous calendar year.”

If owners don’t make the annual declaration by the deadline “and/or provide supporting documentation,” their property will be “deemed vacant,” the city website notes.

“The city of Toronto bylaw establishing the Vacant Home Tax sets out fines from $250 to $10,000 for a range of offences, including: failure to make a declaration; making false or deceptive statements; destroying or altering any records or books of account to evade payment of the tax; and other offences,” Brendon said.

How much is the tax?

Vacant property holders will have to pay a tax that’s calculated as one per cent of the current value assessment (CVA) of the home. If that’s $1,000,000 for example, they will need to pay $10,000 in tax.

It’s based on the property’s status for the previous year. So, if it’s vacant in 2023, that tax will be paid in 2024. Owners owing money will be issued a vacant home tax notice in March/April and payment will be due on May 1.

Exemptions

There are a number of exemptions to this new tax, including if the principal resident has recently died, or is in a hospital or long-term care facility. Repairs and renovations can also earn an exemption.

If property does not include a residential unit — for example vacant land, a condo locker or a parking spot — you don’t need to declare it.

For a full list of the exemptions check the city’s website.

Change of ownership and the vacant home tax

The Vacant Home Tax has implications for property transactions, both for purchasers and vendors:

• It is the responsibility of purchasers and vendors to make the appropriate arrangements to ensure that the declaration has been filed.
• The Vacant Home Tax will form a lien on the property, and any unpaid taxes will become the purchaser’s responsibility.
• If a closing occurs between January 1 and the closing of the declaration period on February 28, the vendor must complete the declaration prior to the closing, as only the vendor will know the property’s occupancy status for the prior year.
• If a closing occurs after the declaration period – February 3 to December 31 – the purchaser must submit a declaration in the following year. The purchaser qualifies for the “transfer of legal ownership” exemption.
• Vendors should provide a copy of the completed and filed property status declaration to the purchaser.
• Vendors should provide a statutory declaration at closing confirming the filed property status declaration is true and correct.

Late payments, late declarations and fines

The by-law includes provisions for penalties for failure to pay and fines for various offences.

Late Payment, Interest Charges & Fees

Interest applies to any overdue Vacant Home Tax amount at a rate of 1.25 per cent on the first day of default and on the first day of each month thereafter, for as long as taxes or charges remain unpaid.

Upon default of payment, the unpaid amount will be added to the property tax roll for the residential property and will be collected in the same manner as property taxes.

A Dishonoured Cheque Processing / Non-Sufficient Funds (NSF) fee will be applied to all payments that are not honored by a financial institution.

Late Declarations

If your property status declaration is not made by the declaration deadline of February 28, 2024, a fine of $250 will be issued.

You will have an opportunity to submit a late declaration and based on your response, you may receive a supplementary Vacant Home Tax Notice.

Failure to make a declaration will result in your property being deemed vacant. Once deemed vacant, your property will be subject to the tax and you will be issued a Vacancy Tax Notice.

Fines

Being found guilty of breaking any of the following offences will result in a fine of $250 to $10,000 for each offence, including:

• Failure to make a Declaration as required.
• Making or agreeing in the making of false or deceptive statements in a declaration.
• Altering, hiding or disposing of any records, in order to evade payment or remittance of tax.
• Making or agreeing in the making of false entries or omission of information.
• Wilfully, in any manner, evading or attempting to evade:
  • paying tax
  • otherwise complying with the by-law.

What else do I need to know?

If you are purchasing a new home and this tax has not been filed by the previous owner, watch out because you’ll be on the hook for it.

“Purchasers and vendors should do their due diligence on closing to ensure they are aware of and have identified any municipal tax liabilities on the statement of adjustments,” said the city’s Brendon.

“As with property taxes, the vacant unit tax will form a lien on the property, and unpaid taxes will become the buyer’s responsibility.”

Where will the money go?

According to Bradford, the revenue generated through this tax “will be allocated to affordable housing initiatives, furthering our ability to provide more housing to more Torontonians.”

What about enforcement?

Brendon said city staff will “conduct reviews and audits” of occupancy declarations and exemptions. “As part of the audit process, supporting information may be requested to support the declaration status,” Brendon added.

Some of the content provided by May Warren, a Toronto-based housing reporter for the Star.