What every homeowner needs to know about Toronto’s new vacant home tax

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

Thestar.com
Jan. 5, 2023
May Warren

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 New Year’s Day.

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 Feb 2. Here’s everything a homeowner needs to know about the new tax:

What is it?

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

Councillor 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.

Jason Mercer, chief market analyst for the Toronto Region Real Estate Board, said the “jury’s still out” on whether this new tax will be successful.

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.

Hopefully the new tax will 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 behaviour,” 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 2022, that tax will be paid in 2023. 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.

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.