The Toronto Vacant Home Tax

The Toronto real estate market is set to experience changes with the introduction of the new Vacant Home Tax. The new tax is aimed at addressing the shortage of affordable housing in the city by encouraging property owners to rent out their unoccupied homes. This article will discuss the details of the new tax, how it will affect the real estate market, and what property owners should expect.

What is the Vacant Home Tax?

The Vacant Home Tax is a 1% tax imposed on the value of homes that are left unoccupied for more than six months in a year. For example, if the current value assessment  of your property is $1,000,000, the tax amount billed would be $10,000 (1% x $1,000,000). 

The tax applies to all properties located within the City of Toronto, including single-family homes, condos, and multi-unit buildings. The tax is part of the City of Toronto’s efforts to increase the supply of affordable housing and reduce the number of vacant homes in the city.

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 2, 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.

How to protect yourself as a buyer:

The best way to protect yourself as a buyer is to speak with real estate lawyers during your transaction. Your lawyer will go through the necessary steps to protect you from possible liens on the property, or any outstanding tax before your transaction is complete.

What should property owners expect?

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

Property owners will be required to declare the occupancy status of their homes on their annual property tax bill payable beginning in 2023. The tax is based on the property’s occupancy status for the previous year. For example, if the home is vacant in 2022 the tax will become payable in 2023. The City of Toronto will use various data sources, such as but not limited to, Hydro bills and property tax records, to verify the occupancy status of homes.

Property owners who are found to be in violation of the Vacant Home Tax will be subject to penalties, including a fine of $250 – $10,000 for each offense 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.

If any of the following exemptions apply, a property may be left vacant:

• 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.
• Repairs of renovations
  • The vacant property is undergoing repairs or renovations, and all the following conditions have been met:
  • Occupation and normal use of the vacant property is prevented by the repairs and renovations;
  • All necessary permits have been issued for the repairs and renovations;
  • The City’s Chief Building Official is of the opinion that the repairs or renovations are being actively carried out without unnecessary delay.
• 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.
• Transfer of legal ownership
  • You purchased your property with a closing in the taxation year being declared, and the sale involved a 100 percent 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.
• 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.
• 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.

Conclusion

The Vacant Home Tax is a significant step taken by the City of Toronto to address the shortage of affordable housing in the city. Property owners who leave their homes unoccupied for more than six months in a year will be faced with a 1% tax on the value of the home. Property owners should expect to be subject to the Vacant Home Tax and be prepared to declare the occupancy status of their homes on their annual property tax bill.