There’s a new municipal tax for homeowners in the City of Toronto and it’s focused on vacant homes. If you are a homeowner in Toronto, you’ve likely already received a yellow notice about this and we thought we’d answer a few questions we’ve been getting from our clients in the city.
Let’s get into it.
What is it?
It’s a tax on vacant homes in the City of Toronto that came into effect in 2022 and it’s in the news now because the first declaration on vacancy status (for 2022) is taking place in 2023.
What makes a home “vacant” for the purposes of this tax?
The definition of vacant is pretty clear. A property is considered vacant if it was not used as the principal residence by the owner(s) or any permitted occupant(s), or was unoccupied for a total of six months or more during the previous calendar year.
That’s a total of six months, so cumulative use, not consecutive. If you spent a month away from the home every season, it’s not vacant. If you spend most of the winter somewhere warm, make sure you don’t also spend your summers at the cottage or technically you could end up qualifying as a vacant home.
Investors need not worry about the tax, as tenants are absolutely occupying a property. If you have a property vacant for more than six months between tenants though you will incur this tax, unless you qualify for an exception such as undergoing repairs or renovations.
Any exceptions to this tax?
There are a few specific exemptions.
The most basic is that this is a tax on residential properties and a declaration is not required if it doesn’t contain a residential unit (for example, vacant land, parking space or condominium locker). Commercial properties with no residential component also don’t have make a declaration.
The other most likely specific exemptions we’re seeing are the death of a registered owner, repairs or renovations taking place at the property, the principal resident being in a care facility or the transfer of legal ownership during the year. In all cases, there is supporting documentation required, so make sure you determine if you actually qualify.
How much is it?
The tax is 1% of your home’s current value assessment or CVA. You will see your CVA on your annual property taxes, and it is assessed by the Municipal Property Assessment Corporation (or MPAC). MPAC
is an independent, not-for-profit corporation that assess and classify all properties in Ontario according to the Assessment Act and regulations established by the Ontario Government.
Due to COVID, the Ontario government postponed the 2020 Assessment Update, which means that any people paying the vacancy tax for the 2022 tax year will be doing so based on the fully phased-in January 1, 2016 current values. Those 2016 values were actually determined by MPAC during the year prior, which means that the “current” value assessments being used are actually coming up on 8 years old!
Considering that the average price for a home in Toronto at the end of 2015 was $627,032 and as of the end of 2022 it was $1,050,788, whatever tax revenues the city realizes will be considerably understated until MPAC catches up with the CVAs. We say considerably understated, but by those numbers, the average price has gone up 67% since then, so perhaps we should say tremendously understated! By using these older CVAs, the city will receive, on average, $6,270 for someone paying the tax. When new CVAs are in place, that number will go up to $10,507 on average.
When is it due?
The first declaration is due by February 2, 2023 and you have to declare whether your home is vacant or not, so don’t think this is just something for people who don’t live in their property. In fact, the City states that “properties may also be deemed (or considered to be) vacant if an owner fails to make a declaration of occupancy status”, so make sure you take the time to submit your declaration.
You can submit your declaration online via the below link.
In terms of the actual payment, any owners of properties subject to the VHT will be issued a Notice in April, 2023 and payment will be due by May 1, 2023.
How are they actually checking this?
A common question that we’re hearing from clients is, how will the city actually be checking to see if a property that was declared as occupied is actually occupied?
The short answer is that like many taxes, the obligation is on individuals to accurately report their situation to the government. In theory, the city may be conducting random audits but given the city is planning on only hiring 25 people to both administer the new tax and audit compliance, that seems unlikely to take place.
As with other taxes, compliance can also be verified based on specific audits triggered by complaints, but with this tax, that seems unlikely. We can’t picture neighbours calling in to the city to ask if the house down the street is registered as vacant because no lights have gone on for a few weeks. There may be scenarios where property damage occurs with police or fire called in and that reveals that a supposedly occupied home is in fact vacant, but we’ll have to see how it plays out this year.
Any new tax can take a bit of time and effort to understand, but the Toronto Vacant Home Tax is relatively straight forward once you review it. Given that Peel and other municipalities are considering similar taxes, and the tax rate will likely increase as it is established, it is worth taking the time.
If you have a vacant property and you’re thinking that paying 1% of the (admittedly out of date) current value assessment sounds like a bad plan, get in touch and we’ll help you get it sold.