Toronto is a city that attracts people from all over the world and it has continuously been experiencing rapid growth over the last several decades. However, in some parts of Toronto and the GTA, this growth has also come with a downside: an increasing number of vacant homes. To combat this issue and encourage owners to put their properties to use, the City of Toronto has introduced the Vacant Home Tax (VHT).
In this blog post, we’ll take a look at what the Vacant Home Tax is, how it works, and why it’s important. We’ll also discuss some potential implications of this tax and outline what you need to know if you’re an owner of a vacant home in Toronto.
What is the Vacant Home Tax?
The Vacant Home Tax is a tax levied on certain properties in the city of Toronto that are not occupied for at least six months of the year. This tax is intended to encourage owners to put their properties to use and reduce the number of vacant homes in Toronto in hopes of increasing more supply of housing throughout the city. The tax rate for each property depends on its location and the length of time it has been unoccupied.
What is the Mandatory Declaration?
All Toronto residential property owners must submit a declaration of their property’s 2022 occupancy status by February 2, 2023. You will likely have received a declaration form in the mail which you can submit to the City of Toronto or you can complete an online declaration HERE. You will need your 21-digit assessment roll number and customer number from your property tax bill or property tax account statement.
For residential properties that are not occupied by the homeowner(s), an audit may be required. If the City conducts an audit, owners may be required to submit information or documentation about tenants and/or permitted occupants to confirm occupancy during the taxation period.
It is important that you submit or complete the declaration form prior to the deadline (Feb 2, 2023) and ensure that the form is fully completed in order to avoid a fine of $250.
Residential properties will be deemed vacant if the owner fails to make the annual declaration by the deadline and/or provide supporting documentation.
How does the Vacant Home Tax work?
The Vacant Home Tax is based on a property’s assessed value, which is determined by the Municipal Property Assessment Corporation (MPAC). Owners of taxable vacant homes are required to complete an annual declaration to confirm that their property is occupied for at least 183 days of the year. If a property has been vacant for more than six months, owners must pay the vacant home tax.
Why is the Vacant Home Tax important?
The Vacant Home Tax is an important tool that can potentially help reduce the number of vacant homes in Toronto. When owners are required to pay taxes on their vacant properties, they are more likely to rent or sell the property in order for that property to be used by individuals who are in need of a residence. This can help improve the city’s housing supply and affordability.
How Is Toronto’s Vacant Home Tax Calculated?
As stated on the City of Toronto’s website:
“A Vacant Home Tax of one percent of the Current Value Assessment (CVA) will be imposed on all Toronto residences that are declared, deemed or determined vacant for more than six months during the previous year. 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).
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.”
What are the Potential Implications of the Vacant Home Tax?
The Vacant Home Tax could have a number of implications for Toronto. For example, it may increase the burden on owners of vacant properties and make it more difficult for them to sell or rent out their homes. It could also lead to some homeowners attempting to game the system by underreporting the amount of time their property is occupied in order to avoid paying taxes.
How Does The Toronto Vacant Home Tax Effect Buying & Selling Toronto Real Estate?
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.
Who is Exempted From Toronto’s Vacant Home Tax?
There are some exemptions that apply to the vacant home tax. Below is a list of current exemptions which may be updated over time:
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.
The vacant property is undergoing repairs or renovations, and all the following conditions have been met:
a) occupation and normal use of the vacant property is prevented by the repairs and renovations;
b) all necessary permits have been issued for the repairs and renovations;
c) 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 in the previous year, and the sale involved a 100 per cent 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.
What Owners of Vacant Homes Need to Keep in Mind
If you are an owner of a vacant home in Toronto, it is important to understand the implications of the Vacant Home Tax. Make sure that you declare your property accurately and pay taxes on time if applicable. It is also advisable to seek professional advice from a qualified accountant, real estate lawyer or the City of Toronto to ensure that you are in compliance with the rules and regulations of the Vacant Home Tax.
Make sure you understand how the Vacant Home Tax works and what your responsibilities are as an owner, so you can stay in compliance with the law and avoid costly fines.