Editor's note: The City of Toronto has extended the deadline for homeowners to file their Vacant Home Tax occupancy status to February 28, 2023.
If you’re a homeowner in the City of Toronto, you’ll have recently received a letter in the mail prompting you to declare whether or not you actually live in your home – or risk a hefty tax bill.
That’s because the City is rolling out the implementation of its Vacant Home Tax (VHT) – officially known as by-law 97-2022 00 – which went into force last January. With one taxable year on record, 2023 now marks the first payable year for the tax, and Toronto residents have until February 2 to submit their declaration. Should they fail to do so, they’ll risk either a fine between $250 - $10,000, or be taxed the full portion of the VHT if they make no declaration at all – 1% of their home’s Current Value Assessment (CVA).
It’s mandatory for everyone who lives in Toronto and who owns a residential property to declare their occupancy status, even if they live in the home. Properties that are used as a principal residence, are rented out for a minimum 30 days, or are otherwise dwelled in, won’t be subject to the tax, but you’ll still need to make your declaration to the City in order to be let off the hook.
Who has to pay the Vacant Home Tax?
The tax will be levied on residences in Toronto that are considered vacant, which the City defines as not being used as a principal residence by either the owner, or any permitted occupant, such as a renter. A home will also be considered vacant if it is unoccupied for a total of six months or more in the previous calendar year, though there are some specific exemptions, including:
- Death of the registered owner, in which a copy of the death certificate must be presented to the city to exempt the estate from the tax.
- Repairs or renovations that are extensive enough that they prevent anyone from living in the residence while they’re underway. The homeowner must have all necessary permits for the work – copies of which must be provided to the city – and the City’s Chief Building Official must agree that the repairs or renovations are being actively carried out without unnecessary delay.
- 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.
- If you have purchased the property with a closing date during the taxation year, you do not need to make your declaration until the following calendar year. This only applies to transactions with a 100% transfer of ownership interest and doesn’t apply to name changes, or a second owner being added or removed to the property’s deed.
- You are required to live in the City of Toronto for work at least six months of the year, but have a principal residence outside the Greater Toronto Area. Proof of residency and a signed letter from your employer on company letterhead, or your employment contract, must be provided to the city.
- There is a court order in force which prohibits occupancy of the vacant property for at least six months of the taxation year.
How is the VHT calculated?
The amount of tax you’ll need to pay is based on the Current Value Assessment of your home, as provided by the Municipal Property Assessment Corporation (MPAC). This is based on a combination of factors including the specific details and condition of your property, as well as local comparable sales data. In all, your CVA determines the value of your home in its current state, and is also used to calculate how much property tax you’ll pay.
If your property is declared or determined to be vacant for more than six months during the previous year, you’ll be taxed 1% of its CVA. For example, if the CVA of your property is $1,000,000, the tax amount billed would be $10,000 (1% x $1,000,000).
Why is the City of Toronto implementing this tax?
It’s no secret that Toronto faces steep housing supply challenges, particularly in the rental market. According to the Canada Mortgage and Housing Corporation, Toronto’s apartment vacancy rate (specifically for purpose-built rentals) fell to 1.7% in 2022, down from 4.4% the previous year. The CMHC finds the city’s rental condo vacancy rate (units rented out by private owners) to be even lower at 1.1%, and that this housing type provides more than a third of all rental units in the city.
Rising mortgage rates and deteriorating housing affordability has put immense pressure on the rental market, as fewer would-be homebuyers have been unable to make the leap into homeownership. This has led to spiking rents over the past year; the December data from Rentals.ca shows the average one-bedroom unit in Toronto hit $2,457 – a year-over-year increase of 21.3% – with a two-bedroom renting for $3,215, up 18.1%.
The VHT is part of the city’s efforts to improve housing affordability and supply, by incentivizing owners of unoccupied residences to either put them on the rental market, or list them for sale. And, according to the latest Census numbers, there are plenty of properties sitting empty – a total of 131,732 units in 2021, which equals about 5.5% of the city’s overall housing stock. That also marks a 32.75% increase from the 2016 numbers.
This reflects the rampant presence of real estate investors in the city, which expanded during the pandemic when borrowing costs were ultra low; a report from real estate data company Teranet reveals multi-property owners made up more than 25% of Ontario real estate deals between January and August of 2021.
The idea of a tax takes its cue from Vancouver, which was the first Canadian city to levy a tax on unoccupied properties, implementing the Empty Homes Tax (EHT) in 2017.
According to the City of Vancouver, the tax has reduced the number of vacant homes by 25% since its launch, with an increase of 5,900 condo units returning to its long-term rental stock in 2019, another 2,455 in 2020,and 615 in 2021. The EHT has generated $115.3M in revenue for the city, which it has since funneled into initiatives such as the Community Housing Incentive Program, which supports the work of local housing non-profits. Like Vancouver, any revenue collected from Toronto’s Vacant Home Tax is to be allocated towards affordable housing initiatives.
It’s becoming an increasingly popular method to address housing supply and drum up additional funds; Ottawa has its own 1% Vacant Unit Tax, and Hamilton city council passed the bylaw for its own tax just last week. Other municipalities, such as Mississauga, are also mulling over the possibility.
Will this impact housing affordability in Toronto?
Unlike other Toronto-specific real-estate related levies that contribute to closing costs – such as the provincial and municipal land transfer tax, and provincial non-resident speculation tax for out-of-country purchasers – those who are buying real estate to dwell in as an “end user” won’t ever have to pay the tax, though declaring your home’s status is still mandatory.
What if I’m buying or selling my home?
There are implications for both home buyers and sellers, depending on the closing date of the real estate transaction. For example, if the home sale closes between January 1 and the end of the tax declaration period on February 2, the home seller must complete the declaration prior to closing, as only they can confirm the home’s occupancy status for the previous year. If the closing occurs after February 2, the purchaser is then responsible to make the declaration the following year.
However, according to the City of Toronto website, any unpaid VHT forms a lien on the property, which ultimately becomes the purchaser’s responsibility, so it’s important for homebuyers to receive a copy of the completed and filed property status declaration from the seller, along with a statutory declaration at closing that the status is true and correct.
The bottom line
With the deadline to make a VHT declaration fast approaching, don’t hesitate; the City will charge interest on any overdue VHT at a rate of 1.25% on the first following day, and then on the first day of each month thereafter, for as long as the tax remains unpaid. In the case the amount remains unpaid, it will be rolled into the residence’s property taxes.
Given Toronto property owners will already be paying more property tax this year – a total of 7% more to the 2022 tax rate of 0.631933%, following a 5.5% increase approved in the most recent operating budget as well as an approved 1.5% increase made last year for the city building levy – there’s no need to add unnecessary VHT late fines to the mix.