In an attempt to alleviate housing shortages and promote property occupancy, the Toronto City Council approved the Toronto Vacant Home Tax (Toronto VHT) on February 3, 2022, with a deemed effective date of January 1, 2022. The Toronto VHT imposes a 1% annual tax on the Current Assessed Value of certain vacant or deemed vacant residential units within the borders of the City of Toronto, targeting properties unoccupied for more than 6 months in a calendar year. On October 11, 2023, the Toronto City Council voted to increase the Toronto VHT to a 3% annual levy effective for the 2024 tax year and onward.
Filing Obligations & Administration
The Toronto VHT requires an annual filing obligation for Every Owner of a Residential Unit in Toronto. Unlike most similar taxes where the tax liability follows the owner of the property, the Toronto VHT instead follows the actual property. Unpaid taxes are added to, and collected through, Toronto’s property tax system. Therefore, purchasers of residential units in Toronto are advised to secure representations, warranties, and indemnities related to historical filings and tax payments under the Toronto VHT.
It is best to file the annual Toronto VHT using the City of Toronto’s secure online portal. However, if you are unable to declare online, owners can complete and submit a paper declaration form. To make the annual declaration, you will need the 21-digit assessment roll number and the customer number from your property tax bill or property tax account statement.
The 2023 Toronto VHT declaration is due by February 29, 2024. Owners of properties subject to the tax will be issued a Vacant Home Tax Notice around the end of March 2024, and will then be required to pay their Toronto VHT in three equal installments, due in May, June, and July of 2024. These dates should remain the same for future years.
Failure to file the Toronto VHT declaration on time results in a property being deemed vacant, subjecting owners to the Toronto VHT even if an exemption could have applied. In order to have the Toronto VHT deemed decision reversed, owners must file a formal Notice of Complaint with the City of Toronto and provide appropriate supporting documentation.
Starting January 1, 2024, a $21.24 penalty is charged for late declarations. Additional fines of $250 and potential fines up to $10,000 for false declarations or non-compliance may be imposed. Interest charges accrue at 1.25% per month on unpaid Toronto VHT amounts, and are added to the property tax bill in case of default.
Common Owner Situations and Available Exemptions
Most owners who occupy or rent their Toronto residential property should not be subject to the Toronto VHT. The most common owner situations are as follows:
|
Occupancy Status |
Description |
Subject to VHT? |
|
Occupied as the principal residence of the homeowner |
The property is where you reside and conduct your daily affairs, receive mail, pay bills, etc. You can only have one principal residence. This applies even if you leave for extended periods due to travel (for example, “snowbirds” who spend more than six months away from their principal residence) or for work. The property must be your principal residence for at least six months during the taxation year to claim this type of occupancy status. Supporting documentation is not required unless requested by the City of Toronto. |
No |
|
Occupied as the principal residence of a permitted occupant |
A person(s) authorized by the registered owner to use a residential property as their principal residence. A permitted occupant is not a tenant or subtenant. A permitted occupant may include, but is not limited to, a family member or a friend of the registered owner. To claim this type of occupancy status the property must be their principal residence for at least six months during the taxation year. Supporting documentation is not required unless requested by the City of Toronto. |
No |
|
Occupied as a tenanted property (including business tenants) |
A residential property that is occupied by a tenant for residential purposes or a by a business tenant who has a written tenancy agreement to occupy the property for a term of at least 30 days. The property must be occupied by one or more tenants for a cumulative six months or more during the calendar year. Supporting documentation is not required unless requested by the City of Toronto. |
No |
|
Vacant with an eligible exemption |
A residential owner may declare the property vacant with an eligible exemption. Supporting documentation is required when declaring an exemption. The eligible exemptions and proper supporting documentation are listed in the table below. |
No |
|
Vacant or deemed/determined vacant |
A residential property that was vacant for six months or more during the taxation year should be declared vacant by the homeowner in the declaration of occupancy status submission. A property will be deemed vacant if the owner fails to make a property status declaration and/or provide supporting documentation where applicable. A property that has been selected for audit, or is under review for a Notice of Complaint or appeal, can be determined to be vacant upon completion of the review. |
Yes |
The various eligible exemptions to the Toronto VHT are as follows:
|
Eligible Exemption |
Description |
Supporting Documentation |
|
Death of a registered owner |
The property was vacant for six months or more in the previous year due to the death of the owner. This exemption may be claimed for up to three consecutive taxation years if the owner died during the taxation year or in the two previous taxation years. |
Copy of death certificate. |
|
Repairs or renovations |
The vacant property is undergoing repairs or renovations, and all the following conditions have been met:
|
Description of the type of project preventing occupancy. Copy of building permits issued that are related to the repairs and renovations. |
|
The principal resident is in a health care facility |
The principal resident of the vacant property is in a hospital or long term or supportive care facility for at least six months during the taxation year. This exemption may be claimed for up to two consecutive taxation years. |
Signed letter from a health care facility on its letterhead. |
|
Transfer of legal ownership |
You purchased/sold your property and closed the transaction in the taxation year being declared, and the purchase/sale involved a 100 percent transfer of an interest in the property to an unrelated individual or corporation. This excludes name changes, adding a second owner, and removing a second owner. |
Copy of land transfer deed. |
|
Occupancy for full-time employment |
The vacant property is required for occupation for employment purposes for a total of at least six months in the taxation year, by its owner who has a principal residence outside of the Greater Toronto Area. |
Proof of residency outside of the Greater Toronto Area. Signed letter from the employer on company letterhead or an employment contract. |
|
Court order |
There is a court order in force that prohibits occupancy of the vacant property for at least six months of the taxation year. |
Copy of the court order. |
|
Vacant new inventory |
Developers can claim this exemption for properties that have never been occupied and remain unsold, for up to two consecutive taxation years. The registered owner of the property must be the developer. The residential unit must be actively offered for sale. |
Active sales listing and proof you are the registered owner and developer. |
Sample VHT Calculation
Assuming you have a vacant property that does not meet any of the criteria for eligible exemptions for the 2022 and 2023 taxation years, the VHT is 1% of the Current Value Assessment (CVA) as stated on your property tax bill. Thus, if the CVA of your property is $1,000,000, your Toronto VHT bill will be $10,000 (1% of $1,000,000) for each of the years 2022 and 2023.
However, for 2024 and future taxation years, the VHT is increased to 3% of the Current Value Assessment as stated on your property tax bill. Thus, if the CVA of your property is still $1,000,000, your Toronto VHT bill will be increased to $30,000 (3% of $1,000,000) per year.
Ownership Complexity and Uncertainties
Determining who needs to file a declaration poses challenges:
- The term “every owner” creates uncertainty for individuals who may own a property jointly with another person or entity.
- A Residential Unit is defined as a property that includes at least one self-contained unit with a dedicated washroom and kitchen. However, the lack of clear definitions for terms like “dwelling unit,” “washroom,” and “kitchen” leaves room for interpretation.
Also, one of the main questions regarding the Toronto VHT is whether or not the property was the owner’s principal residence for at least six months during the calendar year, in order to qualify for the principal residence exemption. But it is unknown how this definition of principal residence relates to the definition of principal residence under section 54 of the Income Tax Act of Canada − which is used to report the principal residence exemption on the sale of real estate for Canadian tax residents. Another unknown is the situation where someone who declares their Toronto home as their principal residence for purposes of the Toronto VHT, but then sells another home outside of Toronto and claims that home as their principal residence on the income tax returns for the same year. We don’t yet know if this scenario is subject to review by either the City of Toronto or the Canada Revenue Agency (CRA). Similarly, we don’t know whether a Canadian tax residency review may be triggered when someone does not report to the CRA as a Canadian tax resident but reports to the City of Toronto that their Toronto home is their principal residence for more than six months of the calendar year.
If The City of Toronto and the CRA are not currently sharing this data, will they start doing so in the future? We hope these uncertainties will soon be resolved. But for now, there seems to be no reprieve for residential property owners. Ottawa also passed a similar Municipal Vacant Unit Tax effective January 1, 2022; Vancouver has passed an Empty Homes Tax (at 3%) effective January 1, 2021; and the Region of Peel (Brampton and Mississauga) is in the process of implementing a similar Municipal Vacancy Tax beginning with the 2025 tax year.
Conclusion
If you own a Toronto residential property or are looking to purchase one in the future, please reach out to Cardinal Point to discuss how your situation relates to the Toronto VHT, and how reporting may impact your Canadian tax status. We recommend you file your annual Toronto VHT declaration on time and retain proof of that filing and any exemption eligibility documentation.