The Toronto Vacancy Tax
On December 16, 2020, the City of Toronto approved the implementation of the new tax on vacant Toronto homes. The new tax is expected to generate at least $55 million to $66 million in tax revenue per year. The vacant home tax will be effective in 2022.
While further details of the tax development process will be provided in 2021, it is expected Toronto’s vacant home tax will be styled after Vancouver’s vacancy tax. The latter was introduced in 2016 by the British Columbia provincial government and became effective in 2017.
British Columbia Vacancy Tax
Under British Columbia’s Vacancy Tax Bylaw No. 11674, certain vacant properties in the city of Vancouver are subject to a 1%-1.25% tax of the assessed value of the property. A 5% penalty applies for unpaid amounts related to the vacancy tax.
Vancouver’s vacancy tax applies to all taxable property as defined in the provincial bylaw. Taxable property is residential property that is vacant property that is not exempt from taxation and not exempt from the vacancy tax. Residential property is defined as class 1 property such as single-family residences, duplexes, multi-family residences, apartments and condominiums. Vacant property is further defined as residential property that has been unoccupied for more than 180 days from January 1 to December 31 of the year (“Period”) or otherwise deemed by the rules. A property that is the principal residence of the occupier or is being rented out for at least 30 consecutive days will not be considered unoccupied.
Uninhabitable properties that do not meet the enumerated exemptions are generally taxable.
Since the vacancy tax became effective on January 1, 2017, all homeowners in Vancouver are required to submit a property tax declaration each year. If the homeowner fails to make a declaration, or makes a false declaration, then the property will be deemed vacant under the rules and possibly subject to the vacancy tax if the other criteria apply.
Vacancy Tax Exemptions
Exemptions from the vacancy tax are available. Homeowners who are away from the property for more than 180 days due to death, property renovations, hospitalization or court order will not be required to pay the vacancy tax under the Vancouver bylaw. Further exemptions apply for certain strata units and land that is limited in its lawful use. Homeowners are further exempt from the vacancy tax if title was transferred during the Period. Furthermore, even if the property is not the homeowner’s principal residence, the vacancy tax will not apply if the homeowner occupies the home for a minimum of 180 days during the Period.
Vacancy Tax Audits
During the pandemic, audits continued to be conducted in respect to the vacancy tax. An estimated 4% of Vancouver homes were audited. With the introduction of the vacancy tax on Toronto properties to be implemented in 2022, it is expected similar audits will be conducted. Taxpayers who own commercial properties, vacant land, property of which a portion is uninhabitable, or property which will undergoing lengthy renovations should consider the application of the vacancy tax in their planning. Evidentiary issues relating to the use of different mailing addresses or lack of tenancy documentation should also be considered.
The vacant home tax is expected to generate significant tax revenues and increase the Toronto housing supply. However, the tax changes will impact taxpayers in Toronto should the new rules apply to them. If you have questions, or want to look into a tax plan to ensure you don’t run afoul of the vacancy tax, speak with a qualified tax lawyer today!
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.