We’ve been dealing with a lot the past 2.5 years. Quietly, the city of toronto passed a vacant home tax in July 2021 which came into effect Jan 1, 2022. Yes, another tax by the city!!
Let me give you the Coles notes on this new tax: The Toronto Home Vacant Tax.
The new tax will be payable in 2023 based on 2022 residency status.
Let’s discuss why the city of Toronto put in the vacant home tax, per the city:
To create a disincentive for homeowners keeping their properties vacant and therefore will either rent or sell them creating more supply of housing. Based on 1% vacancy rate in the city, this new vacant home tax could generate $55 to $66 million annually.
Here’s how it works:
Owners are required to self-declare the status of their homes every year. This will determine whether the vacant home tax is applicable.
If an owner declares their home(s) vacant, they will be required to pay a tax at one per cent of their home’s Current Assessed Value (CVA). For example if the home is assessed by MPAC at $1 million, every year the owners will have to pay an additional $10,000 above and beyond property taxes!!
The tax is based on the property status from the year before – meaning if the home is vacant in 2022, the tax will become payable in 2023.
A property is considered vacant if it has been unoccupied for more than six months during the previous calendar year, and the unit is not the principal residence of the owner, or it is deemed to be vacant under the by-law.
Here is a list of some of the exemptions:
death of a registered owner
property undergoing redevelopment or major renovation
rental restriction or prohibition that prevents the unit from being occupied
transfer of legal ownership of property during the year
court order
Principal residences may be left unoccupied for periods of time without being subject to the tax, which would offer protection from the tax to most snowbirds.
Let’s step back and look at the big picture. This tax applies to non-primary residences. Who would own a second or third home in the city? I can think of real estate investors or foreign buyers. Real estate investors want to put in a tenant or tenants in their properties to generate income to offset the carrying costs (mortgage, property tax, utilities, insurance, etc…). There is no incentive for real estate investors to carry a vacant property for over a 6 month period unless they are undergoing major renovations/redevelopment which in this case the property would be exempt from the vacant home tax.
As for foreign buyers, speaking from personal experience, a child who is attending a local university or college moves in otherwise they rent the property. It will be interesting to see what the numbers look like in 2023 when 2022 data is filed in.
I am skeptical on the costs of running this program at the city vs the income it will generate but time will tell.
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And until next time…..happy investing!!