Taxing on Vacant Property Amid a Housing Crisis. What is the Vacant Home Tax, and Will it Contribute to Solving the Housing Crisis?
On April 27, 2021, we discussed the Toronto Vacancy Tax on our website following its implementation on December 16,2020. Since then, multiple cities across the province and elsewhere, have started implementing the tax in an effort to combat an extremely dire and challenging housing crisis.
What is a Vacant Home Tax?
A Vacant Home Tax is a tax that affects any home which is vacant. Specifically, homes are taxed for their lack of residency or occupation which must last for at least 183 days of the taxation year. The tax originated in British Columbia which implemented the tax in an attempt also to combat a alarming housing crisis in the province. The British Columbia Vacancy Tax (BCVT) subjected properties to tax anywhere from 1% – 1.25% of the assessed value of the property. An additional 5% penalty applies for unpaid amounts related the vacant home tax. The various Vacant Tax Home legislations across the province appear to generally follow a similar taxation rate to the BCVT.
Who is implementing the Vacant Home Tax?
On March 27, 2024, the Ontario government extended the authority for all single- and upper-tier municipalities to impose a tax on vacant homes, effective March 27, 2024. This prompted cities across the province to start passing municipal laws in an effort to address the housing crisis issues plaguing the country nationwide. While the tax is known under different names in different cities and municipalities, all the legislations deal with the same issue – vacant and unused houses. So far, cities such as Toronto, Ottawa, Hamilton and Windsor have all passed some form of Vacant Home Tax legislation with varying tax rates.
Windsor, infamous for its numerous abandoned properties has taken a more drastic approach compared to other cities by electing to tax unoccupied properties at 3% as opposed to the usual 1-1.25% that other cities have elected for. Toronto, Ottawa, and Hamilton on the other hand have all opted for a 1% tax rate. Mississauga was due for similar legislation however, this was halted following Bill 112 which initiated the process of dissolving the Peel Region effective January 1, 2025.
Exemptions under the Tax
The legislation does take into consideration that there exist situations in which a residence must remain vacant and thus allows for an exemption from the tax depending on circumstance. These include death of a registered owner, repairs or renovations, principal resident in is long term care (i.e. living off the property), transfer of legal ownership, occupancy for full-time employment, and a court order. All of these eligible exemptions have specific definitions and require specific supporting documentation which can be found here in order for an individual to not pay the tax.
Why is the Tax being Implemented?
It is the clear that the country and especially Ontario, is suffering from an unprecedented housing crisis. By taxing unoccupied properties, the government is hoping that this applies a form of soft pressure on owners to either lease or sell houses thus increasing the housing supply. After all, tax legislation is generally policy-driven with the motivation here lying in the housing crisis and providing solutions.
Realities of Implementation
While the idea behind the Vacant Home Tax is sound, implementing it on the other hand has been a challenge as it seems to be a case in which reality has not lived up to theory. The City of Toronto has received over 120,00 complaints about the vacant home tax bill with issues ranging from occupying owners wrongfully taxed to homeowners who filed unoccupied declarations on time and are still fined for late fees, nonetheless. This has caused such a tremendous number of issues in Toronto that the regions of Vaugan, Markham and York which were slated to introduce their own versions of a Vacant Home Tax, have halted such plans in light of observing the impact of the Vacant Home Tax in Toronto.
What Does this Mean for the Future of the Vacant Home Tax?
Do the issues currently plaguing Toronto in regard to the Vacant Home Tax mean that any such legislation is doomed to fail? Or is there another manner in which the government can decrease the amount of unoccupied property through different legislation which does not include taxes? The government must tread the line with any such legislation and not transgress the rights of property owners.. In the event that it is effectively implemented, one must also question whether this tax will truly have a positive effect on the housing market by increasing the housing supply. Only time will tell by observing the outcome of the tax in Toronto and other jurisdictions.
**Disclaimer: This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
Matthew Pollock