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From a ban on foreigners to taxing empty houses, Canada is leaving no stone unturned to battle its rising housing affordability crisis. The imposition of tax on vacant homes started in Vancouver in 2017 and now it has made its way to Toronto. This new tax is aimed at increasing the housing supply by discouraging property owners from leaving their homes unoccupied. With the first payable year for the tax being 2022, homeowners need to understand what the Vacant Home Tax entails and how it will affect them.
The Canadian Home is here to provide a comprehensive overview of the Vacant Home Tax, including its calculation, declaration requirements, exemptions, and potential impact. Whether you’re a homeowner in Toronto or just curious about this new tax, this blog will provide valuable insights and information.
The Vacant Home Tax is a tax imposed on homeowners in Toronto who leave their properties unoccupied for a significant portion of the year. The tax was introduced by the City Council in a bid to increase the housing supply and make better use of the city’s available properties. The Vacant Home Tax is calculated at a rate of 1% of a property’s Current Value Assessment (CVA). This means that if your property has a CVA of $500,000, for example, you would be liable for a Vacant Home Tax of $5,000.
All residential properties in Toronto are subject to the Vacant Home Tax, with certain exceptions in place. Property owners who wish to avoid paying the Vacant Home Tax must declare the status of their properties by February 2 of each year and provide evidence of occupancy, such as utility bills, to prove that their homes are lived in.
The declaration deadline for the Vacant Home Tax in Toronto is set for February 2nd each year. All homeowners of residential properties in Toronto must declare the occupancy status of their property through an online declaration form before the said date. If needed, a paper declaration form can also be downloaded, filled out completely, and submitted to the city before the designated deadline. The declaration must clearly state whether the property is lived in for the majority of the year, or if it is considered vacant, by providing the necessary documentation to support the claim.
Failure to submit a declaration can result in the property being deemed vacant and subject to tax, with fines reaching up to $10,000 or being taxed the full 1% of the Current Value Assessment (CVA). A property is considered vacant if it remains unoccupied by the owner or other occupants for six months or more.
City officials will send out a reminder before the deadline of February 2nd, and there will be a grace period available for late declarations before any fines are imposed.
The Vacant Home Tax in Toronto is not a one-size-fits-all policy. Various exceptions cater to different circumstances that a property owner might face. These exemptions allow for a more tailored approach to the tax and ensure fairness in its implementation.
The following situations qualify a property to be exempt from the Vacant Home Tax:
The property was unoccupied for six months or more due to the death of an owner. The property is undergoing renovations or repairs, which prevents normal occupation and use, and all required permits have been obtained and the work is being completed without undue delay.The primary resident of the house has been in a hospital or long-term care facility for at least six months during the taxable year, with the exemption being valid for two consecutive taxable years.The property was purchased the previous year and the sale involved a full transfer of ownership to an unrelated individual or corporation.The owner requires the property for employment purposes for at least six months, with a primary residence outside the Greater Toronto Area.There is a court order in place preventing the property from being occupied for at least six months of the taxable year.Each scenario requires its own set of documents to be attested when filling out the declaration form. Click on this link to know what they are.
The Canadian government has been utilizing the Vacancy Tax as a means to regulate the housing market and limit the rise of housing prices and rents. Due to the imbalance of supply and demand, the property and real estate market has become unaffordable for some residents.
Toronto is the latest Canadian city to implement a tax on vacant homes to address the nationwide housing shortage. The proposed tax of 1% applies to both residents and non-residents who own a secondary home. Vancouver was the first city to introduce this tax and has generated significant funds towards affordable housing initiatives. The funds generated from this tax will be dedicated to providing affordable housing options, to reduce the number of vacant rental properties.
According to a report by the Canada Mortgage and Housing Corporation (CMHC), the rental market in Canada is at its tightest since 2001. The outcome of this tax in Toronto remains to be seen, but it could provide valuable insight into the number of vacant properties and potentially increase the housing supply in the face of the current housing shortage.
The implementation of the Vacant Home Tax will have a significant effect on real estate transactions within Toronto. The tax will be recorded as a lien on the property, and any outstanding taxes will become the responsibility of the buyer. To safeguard their interests, buyers, real estate agents, and lawyers should ensure that the seller provides a copy of the filed property status declaration during the purchase negotiations and closing process.
The City of Toronto projected in 2021 that it would need to employ 25 individuals to oversee and enforce the tax. The cost of establishing the program is expected to be $11 million over two years and will cost approximately $3 million annually to maintain. Despite the cost, the city anticipates that the tax will generate up to $66 million in revenue annually, which will be used to create more affordable housing options.
The Vacant Home Tax in Toronto is an important policy aimed at increasing the housing supply and reducing the number of unoccupied properties in the city. All residential property owners in Toronto must understand the requirements and consequences of the tax. By staying informed and taking the necessary steps to comply with the Vacant Home Tax, property owners can ensure that they are avoiding financial penalties and contributing to the city’s housing supply.
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