Feb 2023

Understanding the Vacant Home Tax

By Mirjana (Mira) Markovic

Find our previous article on this topic here.

Effective January 1, 2023, the City of Toronto and the City of Ottawa both passed bylaws to introduce a new tax for vacant homes/units. These bylaws require residential homeowners to declare the occupancy status of their properties annually. The Vacant Home Tax Property Status Declaration (“Declaration”) shall determine whether the Vacant Home Tax (“VHT”) applies and is payable. Properties that are vacant for more than 6 months in the prior taxation year will be subject to a tax of 1% of the property’s assessed value in the current year contingent to exemptions as defined by the Vacant Home/Unit Tax Bylaw for the City of Toronto. The goal behind introducing such a tax is to increase the supply of housing by discouraging owners from leaving their residential properties unoccupied.

Types Property Status Declaration

The chart below outlines status of a property and whether the VHT is applicable.

Property Status	Description	Does VHT Apply?
Principal residence	Any housing unit owned by the taxpayer, which he or she, or someone related to that taxpayer, ordinarily inhabited during a particular year, and is designated as a principal residence at the time of sale. (Section 54, Income Tax Act)	NO
Occupied as a principal residence of a permitted occupant.	A permitted occupant includes but is not limited to a family member or a friend of the registered owner.	NO
Tenanted property	Occupied by an individual(s) who has/have a written lease agreement for a term of at least thirty (30) days.	NO
Vacant with an eligible exemption	Exemptions: Death of a registered owner (property vacant for six (6) months or more in the previous year due to death of owner; Repair/renovation; Principal resident is in long-term supportive care, or hospital for up to six (6) during taxation year (this can be claimed for two (2) consecutive taxation years) Transfer of legal ownership; Occupancy for full-time employment (vacant property required for occupation for employment purposes for at least six (6) months of the taxation year; Court Order (court order prohibits occupancy)	NO
Vacant, deemed or determined vacant	Homeowner can declare property vacant through the property status declaration; a property will be deemed vacant if property status declaration is not completed; a property will be determined vacant if selected for an audit.	YES

Deadline to file the Vacant Home Tax Property Status Declaration

Deadlines to file for the year 2022 are as follows:

For Toronto: The declaration must be filed by February 2, 2023
For Ottawa: The declaration must be filed by April 30, 2023.
For transactions closing between January 1 and the date the annual declaration is due

(Toronto – February 2; Ottawa – April 30), the seller must file the declaration before closing.

Implications for property transactions, both for purchasers and sellers:

Both purchasers and sellers are obligated to make the appropriate arrangements to file the Declaration. If sellers fail to file the said Declaration, the VHT shall form a lien on their property, and any unpaid taxes shall become the purchaser’s responsibility.

Please note that if a closing occurs between January 1^st and February 2^nd, the seller is obligated to complete the Declaration prior to the closing because only the seller will know the property occupancy status for the prior year. However, if a closing occurs after the Declaration period (February 3^rd to December 31^st), the purchaser must submit a Declaration in the following year. In this case, the purchaser qualifies for the “transfer of legal ownership exemption” indicated above.

The seller is required to provide a copy of the completed and filed Declaration to the purchaser along with a statutory declaration at closing confirming the filed Declaration is true and correct.

The bylaw continues to be a work in progress and professionals have noted several areas which have not yet been addressed. Some of these areas include but are not limited to the following: a) The VHT does not apply to tenant property that have a written lease agreement for a term of at least thirty (30) days. What about the myriad properties located in Toronto that do not have a written lease? Does the VHT apply?; b) What about Airbnb? These establishments may be occupied for most of the year however, the leases are less than 30 days; c) What about individuals who are in long-term care or a hospital? It appears that these individuals are exempt from VHT if they are in any of the said facilities for up to six (6) months but if over six (6) months then the VHT would apply.

I except that these bylaws will require further amendment in order to provide more concreate guidelines on properties that are subject to and exempt from VHT.

I hope that this article has provided you with some helpful information. If you have any questions, please do not hesitate to contact me at mira@sorbaralaw.com.