Torontonians whose properties sit empty more than half the year will soon have to pay a hefty tax, but it remains to be seen whether the penalty will actually help increase housing supply in a city facing an affordability crisis.
Homeowners have until February 2 to declare whether their property is vacant or not.
If the owner deems the property vacant or fails to complete the return, a tax of one percent of the home’s assessed value will be applied to property tax bills starting in the spring.
Supporters say the new tax could persuade some owners to list underutilized properties for sale or put them on the rental market, helping to increase housing supply.
But opponents say the tax is confusing and ultimately won’t have much of an impact when it comes to increasing housing stock.
Here’s what you need to know about Toronto’s vacancy tax:
What is?
The tax was first approved by the City Council in 2021, but it took the better part of two years to implement. Once it comes into effect, it will apply to residential properties that have been empty for more than six months of the previous tax year, but there are a number of exemptions available, including if the main resident has died or had to be hospitalized or for long-term care facility for more than half a year. Repairs and renovations are also exempt as long as city officials are of the opinion that the work is “proactively being carried out without undue delay.”
What should homeowners do?
All homeowners should have already received a notice in the mail and will have to file their return by February 2nd either through an online portal or by sending it by post. The city will then issue official tax notices in March and April. Owners who fail to complete the form by the Feb. 2 deadline will still have the option to make a late return, but could face a fine of at least $250.
Speaking to CP24.com this week, Etobicoke Center Coun. Stephen Holliday said he had already heard from a number of voters who were confused by the process.
Others, he speculates, may not even be aware of it yet and may not receive their returns by the deadline.
“I’ve heard from a lot of people who don’t necessarily have access to a computer and find it challenging or complex,” he said. “My prediction is that there will be quite a few people who will get a very large bill in the mail (in the spring) and say, ‘What’s that?’ My home was not empty. They will have the chance to make a late return, but may face a $250 fee as a result.
How effective will the tax actually be?
City officials have estimated the tax could bring in between $55 million and $66 million annually, with that money then going toward affordable housing initiatives. But Jason Mercer, who is chief market analyst for the Toronto Regional Real Estate Board (TRREB), said the success of the tax will ultimately depend on its ability to persuade some owners to rent or list their properties for sale.
“I think the jury is still out. If we do an audit of the revenue generated by the tax a year from now, my hope would be that it doesn’t actually generate that much revenue and actually see people who have vacant homes or are listing them for rent or for sale,” he said. “If we find that a ton of additional revenue is going into the city’s coffers, the supposed point of the tax will not be met.”
How many vacant homes are there?
Nobody knows for sure. A 2017 staff report estimated there could be 15,000 to 28,000 vacant housing units in Toronto, based on water and utility data. But staff warned at the time that the number was probably not a “reliable estimate” and could not be used to actually identify vacant properties.
Holliday said that while there are some vacant properties “here and there,” he suspects many of them come with a “long history” that could exempt their owners from paying tax.
“Given the cost of maintaining a property and of course the payment of property tax that every property is subject to, it would be very surprising to me if many of these properties just happen to be vacant,” he said. “I think for the most part it’s a tax that’s going to go over every resident’s desk or kitchen table and it’s really, really going to have an impact on very, very few.” But still, everyone will have to go through this process.
Is this type of tax effective elsewhere?
Vancouver is the only other major city in Canada with a vacancy tax, although a number of other municipalities, including Mississauga, are exploring the possibility of introducing one. Since the tax went into effect in Vancouver in 2017, the number of vacant properties declared by homeowners has dropped by 36 percent. The tax itself has also been increased several times and is now set at five percent of the home’s valuation. For his part, Mercer said the number of vacant homes identified through Toronto’s declaration process in 2023 will really only serve as a “baseline” and it will likely take “several years” to determine whether the tax is serving its purpose effect here.
“They’ve just now sent out the forms for people to declare whether, you know, their housing is vacant or not, and that will give us a baseline. And then, you know, next year they’re obviously going to collect the information again and, you know, we’ll have to see how that changes,” Mercer said. “There are a lot of considerations and it has to be measured properly.”
How will the city ensure tax compliance?
IRS Director Casey Brendon told CP24.com that officials will “perform reviews and audits of employment status returns and any exemptions claimed,” though she did not provide any information on how often audits will take place. City officials previously said in a 2021 staff report that they expect to hire 25 new employees to help administer taxes and perform audits.
Can the tax be inherited by the home buyer?
Potentially. Brendan says that if a declaration is not received by February 2nd and the home is sold before the tax is assessed, the new owner may wish to “file an appeal/appeal for review.” She said buyers are also advised to “discuss the vacancy tax implications of property purchases and discuss who (seller or buyer) will be responsible for filing a return for the unit.”
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