Toronto’s New Vacant Home Tax

In December 2020, Toronto City Council asked City staff to develop a Vacant Home Tax (“VHT”) program and to report back with a recommended design for a VHT by the end of the second quarter of 2021, for tax implementation in 2022. At its meeting held on July 14^th and 15^th 2021, City Council approved the development and implementation of a VHT in Toronto and a final report and tax by-law was expected by the end of 2021 for the Council’s review.

During the City Council Committee Meeting that was held on the 15^th, 16^th and 17^th of December 2021, City Council authorized the City Solicitor to introduce the necessary Bill to give effect to the VHT at the next City Council meeting that was held on February 2^nd and 3^rd 2022, and to amend the City of Toronto Municipal Code to add the VHT by-law as Chapter 778. At this time, the by-law has not yet been published for public review; however, the by-law came into effect on Saturday, January 1^st 2022. This will be the start of the first tax reference year — the period during which the vacancy status of a property will be used to determine whether the tax is payable.

A similar tax programme was introduced in Vancouver in 2017. The Empty Homes Tax, also known as the "Vacancy Tax", was introduced to help return empty and under-utilized properties to the market as long-term rental homes for people who live and work in Vancouver. Vancouver homeowners are required to submit a declaration each year to determine if their property is subject to the tax. As with the VHT in Toronto, most homes will not be subject to the tax as it does not apply to principal residences, homes that qualify for an exemption, or homes rented for at least six (6) months of the year. The City of Vancouver confirmed that since its inception, the tax has helped reduce the number of empty homes in the city by 25%. Despite this, there are still many homes that remain vacant, as such, the city increased the tax from 1.25% to 3% for the 2021 tax year, in the hope that more homeowners occupy their properties, stating that “homes are for people, not speculation”.

Key Tax Concepts

Principal Residence

For the purposes of the VHT, a “principal residence” is a residential unit occupied by an individual person, either alone or jointly with others, where the individual person is ordinarily a resident. A person may only have one principal residence (for homeowners who own more than one home, one of their homes will be considered their principal residence). Homes that are principal residences have no minimum occupancy time requirements and are not subject to the VHT. All other homes owned by an owner are considered to be non-principal residences which shall be subject to the VHT unless it is either: (i) designated as the principal residence of a family member or friend for at least six (6) months of the tax reference year; or (ii) rented out to a tenant, for a minimum consecutive term of 30-day terms for at least six (6) months of the tax reference year.

Vacant Residential Unit

For the purposes of the VHT, a residential unit is deemed "vacant" if:

a) it has been unoccupied for more than six (6) months during the prior calendar year; or

b) it is deemed to be vacant in accordance with the by-law.

Six (6) months is considered a reasonable amount of time to require rental occupancy, as it provides new landlords with flexibility and time to find a suitable tenant.

Objectives of the VHT in Toronto

The tax on vacant homes in Toronto will apply to residential units that are capable of being occupied, and that are not the principal residence of the owner, their permitted occupier (such as a family member or friend), or of a tenant or subtenant, for more than six (6) months of the past calendar year, unless one of the established exemption reasons apply.

The overall objective of the tax is to impose an additional levy on owners of residential properties that are capable of being occupied, but which the owner has decided to maintain vacant, thereby keeping otherwise available housing stock unoccupied.

All property owners will be required to self-declare the status of their residential home(s) each year which will determine the home’s occupancy status and whether the VHT is payable. If a property owner declares their home(s) vacant, but not a principal residence, they will be required to pay a tax at one percent (1%) of their home’s Current Assessed Value (“CAV”). The tax on vacant homes will become payable for the first time in early 2023, based on the occupancy status during the prior year.

Will “Snowbirds” be Exempt from the VHT?

Owners of homes who typically leave their principal residences for extended periods of time are likely to fall into one or more of the following categories:

1. snowbirds, typically retirees, who leave their home in Toronto for a period of time each year in the winter months, but return during warmer months of the year;
2. homes under renovation; or
3. Toronto residents who take leave temporarily to care for an ill family member elsewhere but maintain their principal residence in Toronto.

As noted herein, principal residences may be left unoccupied for periods of time without being subject to the VHT. Thus, snowbirds who leave their principal residence vacant for a period of the tax year will not be captured under the VHT program.

Additional Considerations

The administration of the VHT in Toronto will include regular auditing to ensure compliance with the VHT by-law, as well as compliance with other City programs and standards, including compliance with the City's Short Term Rental By-law and Regulations. In order to ensure compliance with the VHT, and to ensure that remittances of the VHT are paid, the by-law will include provisions that include penalties for failure to pay, and fines for various offences.

If you have any questions, please do not hesitate to contact anyone on our team:

All of the information contained in this article is of a general nature for informational purposes only, and is not intended to represent the definitive opinion of the firm of Elia Associates on any particular matter. Although every effort is made to ensure that the information contained in this article is accurate and up-to-date, the reader should not act upon it without obtaining appropriate professional advice and assistance.