A Brief Overview of the New Toronto Vacant Home Tax 

  • January 16, 2023
  • Birute Luksenaite

Effective January 1, 2022, the City of Toronto has begun to levy an annual 1% property-value-based tax on vacant residential properties (the Vacant Home Tax or “VHT”). VHT was codified in the new Chapter 778 (https://www.toronto.ca/legdocs/municode/toronto-code-778.pdf) of Part 2 (General By-Laws) of the Municipal Code, which Part already contained, inter alia, the City’s property tax and land transfer tax provisions. 

Toronto is the second city in Canada to enact the so-called underused homes tax, Vancouver being the first city to introduce such a municipal tax effective 2017. Ottawa implemented its counterpart tax concurrently with Toronto. The City of Hamilton and the Regional Municipality of Peel are presently in the process of instituting such taxes. 

The VHT is distinct from the provincial Ontario Non-Resident Speculation Tax and from the federal Underused Housing Tax. BC’s Speculation and Vacancy Tax, although it levies vacancy taxes, is also a separate tax program. 

The goal of the VHT is to increase the supply of housing by discouraging owners from leaving their residential properties unoccupied as the shortage of housing supply continues and to augment public housing funds. The VHT program is harsh. Generally, a residential unit will be taxed as vacant if for MORE than 6 months in the year it is NOT the principal residence of its owner or of another occupant or if the unit is not tenanted for residential purposes for at least 6 months in the year.  

If a unit is (or is deemed to be vacant), its owner will be subject to the VHT in the amount of 1% of the property’s value assessed for property taxation purposes. The current provisions contemplate only 6 exemptions from VHT:

1.    The owner of a vacant unit died in the applicable or the previous taxation year;
2.    The vacant unit is undergoing repairs/renovations which prevent its occupation and normal use for at least 6 months in the year and for which the requisite permits have been issued, and the City’s Chief Building Official is of the opinion that the repairs/renovations are being carried out without delay;
3.    The principal resident of the unit is residing in a hospital, long term or supportive care facility for at least 6 months in aggregate during the taxation year (this exemption is available for up to 2 consecutive taxation years);
4.    Legal ownership of the vacant unit has been transferred to an arm’s length transferee in the taxation year;
5.    The vacant unit is required for occupation for employment purposes at least 6 months in aggregate during the taxation year by its owner who has a principal residence outside of the Greater Toronto Area;
6.    A court order is in force which prohibits occupancy of the vacant unit for at least 6 months of the year.

The 6 exemptions exclude reasonable circumstances such as inability to find suitable tenants, delayed building permits, force majeure events, permitted secondary uses of residential property, prolonged administration of estates, etc. 

A unit will also be deemed to be vacant and taxed if its owner fails to make the mandated annual declaration or to supply information demanded by the City and the failure is not reversed by way of a complaint or appeal. 

The annual declaration is due by February 2 of the calendar year that follows the applicable taxation year. The City can demand information to support declarations and request an inspection of a property. VHT assessments along with payment due dates will be issued by the City’s Chief Financial Officer following the declaration period close. Unpaid taxes will bear interest at 15% per annum. Fines of up to $10,000 plus special fines may apply for non-compliance with VHT and/or for offences thereunder. 

Like property taxes, the VHT liability will follow the title of the property and not the owner. But whereas property taxes have no subjective component, the VHT depends directly on the owner’s circumstances and it may lead to unfair outcomes at property disposition time. This past January I closed two Toronto estate property sales where the buyers made no inquiry about the VHT declaration status nor asked for an undertaking to comply with the 2022 VHT declaration. If my clients, the vendors, do not file the 2022 VHT declaration, the new property owners may receive $20,000 or more in VHT assessments. The buyers’ lawyers likely overlooked the coming into force of this new tax program. 

2022 is the first taxation year for which a declaration with respect to the occupancy of a property is required and its deadline is February 2, 2023. Notices regarding this first mandatory reporting were printed on yellow slips and mailed by regular mail to property owners in November, 2022, although I am aware of a number of owners who never received theirs. The declaration can be filed online at toronto.ca/vacanthometax or on paper (https://www.toronto.ca/wp-content/uploads/2023/01/8c6a-COT-VHT-Declaration-Form.pdf); the filer must provide the property’s Assessment Roll Number and their City of Toronto Property Tax Customer Number.

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