In 2022, Toronto and Ottawa introduced vacant homes tax regimes.[1] These regimes are modelled after the empty homes tax regime introduced in Vancouver in 2017, and are aimed at incentivizing owners of vacant residential properties to sell or rent their properties.
Unlike the federal Underused Housing Tax Act, these municipal regimes are not limited to owners that are non-citizens or non-permanent residents of Canada, and instead apply to all owners of residential properties in Toronto and Ottawa.
The Toronto and Ottawa regimes impose an annual tax payable by registered owners of vacant residential properties (subject to certain exceptions), and require all registered owners of residential properties (including occupied properties) in Toronto and Ottawa to file an annual declaration to report the occupancy status of their properties.
The deadline for the 2022 declaration is February 2, 2023 for Toronto and March 16, 2023 for Ottawa. Failure to make the required declaration can result in a property being deemed to be vacant, such that the tax, as well as penalties and interest, may apply.
Toronto Vacant Home Tax
The Toronto vacant home tax (the “VHT”) applies to a “residential unit” located in Toronto that is a “vacant unit” and that does not qualify for an exception.[2] A “residential unit” is a property comprised of 1 or more “self-contained units,” defined as a dwelling unit that includes a dedicated kitchen and washroom.[3] Residential units would generally include single and multi-family residences, apartments, condominiums, etc., but would generally not include commercial properties or vacant land.
A residential unit is considered a “vacant unit” if, for more than 6 months during a taxation year, it is not:
1. The “principal residence” of the owner or another occupant; or
2. Occupied by one or more tenants pursuant to a written lease for a consecutive term of at least 30 days.[4]
A residential unit that is vacant for more than 6 months during a taxation year is exempt from the VHT if 1 of the following exceptions applies:
1. The owner of the unit died in the taxation year or the previous year;
2. The unit is undergoing repairs or renovations and:
-
- occupation and normal use is prevented by the repairs or renovations for at least 6 months of the taxation year;
- all required permits have been issued for the repairs or renovations; and
- the city’s Chief Building Official is of the opinion that the repairs or renovations are being actively carried out without unnecessary delay;
3. The principal resident of the unit is residing in a hospital, long term or supportive care facility for an aggregate of at least 6 months during the taxation year[5];
4. Ownership of the unit has been transferred to an arm’s length person in the taxation year;
5. The unit is required for employment purposes for an aggregate of at least 6 months of the taxation year by the owner who has a principal residence outside the Greater Toronto Area; or
6. A court order prohibits occupancy of the unit for at least 6 months of the taxation year.[6]
If a residential unit is vacant for more than 6 months in a taxation year and none of the exceptions are available, the VHT will apply. The VHT is currently 1% of a residential unit’s current value assessment and is generally due May 1st of the following taxation year (or such other date indicated in a VHT notice of assessment).[7]
Under Toronto’s vacant home tax regime, all registered owners of residential units in Toronto (including occupied properties) are required to file an annual declaration to report the occupancy status of their properties, and for vacant units, to report whether an exception from the VHT is available.[8] If an exception from the VHT is claimed, supporting documentation must be filed with the declaration (for e.g., a transfer deed for a property that has been transferred to an arm’s length person) and such documentation should be retained for at least 3 years.[9]
The declaration may be filed online or by mail, and is due the 2nd day of February of the following taxation year.[10] As mentioned above, the filing deadline for declarations for the 2022 taxation year is February 2, 2023.
If an owner fails to make the required declaration (or fails to provide information or documents requested in the course of a VHT audit or review), their residential property will be deemed to be a “vacant unit”, and the VHT will apply.[11]
Owners who fail to file the annual declaration as required or who make false statements in the declaration may be subject to a penalty of between $250 and $10,000 per offense.[12] Interest at a rate of 15% per year (1.5% per month) may also be charged on unpaid VHT and penalties.[13]
Ottawa Vacant Unit Tax
The Ottawa vacant unit tax (the “VUT”) is similar to the Toronto regime, with some notable differences.
The VUT applies to a “residential unit”[14] that, for more than an aggregate of 184 days in a calendar year, is not the “principal residence” of the owner or a permitted occupant and is not occupied by a tenant under a tenancy agreement (written or oral) for a term of at least 30 consecutive days.[15]
The Ottawa regime includes exceptions for residential units that were vacant for an aggregate of more than 184 days in a calendar year that are substantially the same as those applicable under the Toronto regime.[16] The following additional exceptions are also available under the Ottawa regime:
1. A residential unit that was, for a combined period of at least 184 days in a calendar year:
-
- unoccupied in order to redevelop or carry out major renovations for which the city has issued permits and which in the opinion of the city’s Chief Building Official are being carried out diligently and without unnecessary delay; and
- occupied by an arm’s length tenant for a term of at least 30 consecutive days either:
- (i) prior to the issuance of the permits, where the tenant gave notice to end the tenancy; or
- (ii) after the redevelopment or renovation work has been completed[17]; and
2. A residential unit that was used as a “short-term cottage rental”[18] and:
-
- the owner has a host rental permit;
- the unit was rented for more than 100 days with proof of revenue; and
- the property is located in certain prescribed rural zones.[19]
The VUT is currently 1% of a residential unit’s Municipal Property Assessment Corporation (MPAC) assessed value.[20] The VUT is applied to an owner’s property tax bill and is due on the third Thursday of June of the following calendar year.[21] VUT payments for 2022 are due June 15, 2023.
Under Ottawa’s vacant unit tax regime, all registered owners of residential units in Ottawa (including occupied properties) are also required to file an annual declaration to report the occupancy status of their properties and whether an exemption from the VUT is available. [22]
The declaration may be filed online, over the phone or by in-person appointment. The declaration for 2022 is due by March 16, 2023. If a declaration is filed late but before April 30, a late filing fee of $250 applies.[23] The late-filing fee has been waived for 2023.
A residential unit will be deemed to be vacant and therefore subject to the VUT if:
1. The owner fails to file the declaration by April 30 of the following calendar year;
2. The owner submits a false declaration;
3. The owner fails to provide information or submit evidence requested by the city in the course of a VUT audit or review; or
4. The owner provides false information or submits false evidence to the city.[24]
Owners who fail to comply with the requirements of the Ottawa regime may be subject to a penalty of between $500 and $10,000 per offense.[25] Interest may also be imposed on unpaid VUT and penalties at a rate of 15% per year (1.5% per month).[26]
Conclusion
The current iterations of the Toronto and Ottawa vacant homes tax regimes contain a number of gaps and uncertainties. For example, under both regimes, the exception for residential properties undergoing major repairs or renovations each require that the city’s Chief Building Official believes that the work is being completed without “unnecessary delay.” However, there is no guidance on what constitutes “unnecessary delay”, and any determination by a Chief Building Official that there was “unnecessary delay” would presumably only be made after the annual declaration is filed in the course of an audit. Further guidance and refinement of the municipal By-laws enacting these regimes is needed, particularly as the applicable tax rate is expected to increase above 1% over time.[27] Further developments are expected as more municipalities introduce similar residential vacancy taxes. The city of Hamilton is expected to introduce the tax in 2024, and London, Windsor, Halton, Durham, Peel and York regions are also expected to impose residential vacancy tax regimes in the coming years.
Should you have any questions or concerns, please feel free to reach out to a Member of Miller Thomson’s Corporate Tax Group.
[1] City of Toronto By-law 97-2022 [Toronto By-law]; City of Ottawa By-law 2022-135, Pt. 6 [Ottawa By-law].
[2] Toronto By-law, supra note 1, s 778-3.1.
[3] Ibid, s 778-1.1.
[4] Ibid, s 778-2.1.
[5] This exception is only available for 2 consecutive years.
[6] Toronto By-law, supra note 1, s 778-3.3.
[7] Ibid, ss 778-3.1-778-3.2.
[8] Ibid, s 778-4.1.
[9] Ibid, s 778-7.1.
[10] Ibid.
[11] Ibid, s 778-4.2.
[12] Ibid, s 778-9.2.
[13] Ibid, s 778-6.1.
[14] Defined as a property classified in the residential property tax class under the Assessment Act.
[15] Ottawa By-law, supra note 1, s 2(3).
[16] Ibid, s 3(1).
[17] Ibid, s 3(1)(f).
[18] As defined in By-law 2021-104.
[19] Ottawa By-law, supra note 1, s 3(1)(g).
[20] Ibid, s 2(4).
[21] Ibid, s 2(5).
[22] Ibid, s 5(1).
[23] Ibid, s 5(2).
[24] Ibid, s 6(1).
[25] Ibid, s 9(3).
[26] Ibid, s 2(7).
[27] The vacancy tax rate in Vancouver increased from 1% in 2017 to 5% in 2023.
