First filings coming up for new housing taxes in Toronto and Ottawa

Published by Noah Sarna & Gloria Wang & Sarah Faber

Vacant housing taxes came into effect in Toronto and Ottawa for 2022, meaning that homeowners will have to file their first occupancy status declaration by February 2023 (for Toronto) and March 2023 (for Ottawa). Toronto’s portal is now open for online filing. The City of Ottawa’s filing portal is set to open shortly, in January 2023.

Toronto’s “vacant home tax” and Ottawa’s “vacant unit tax” are both modelled after Vancouver’s “empty homes tax”, which has been in effect since 2017. The City of Hamilton has announced that it intends to introduce a similar “vacant home tax” in January 2023, which would come into effect for 2024.

These new taxes share a common stated purpose: to mitigate the housing crisis in major Canadian cities by pushing owners of unoccupied or underused homes to sell or rent them out. Those who decline both options will be forced to pay into a fund designated primarily for public housing programs.

The Toronto and Ottawa regimes also share a basic structure. Pursuant to new municipal bylaws, the registered owner of a residential property will pay an annual tax equal to 1% of the property’s assessed value, unless the circumstances fall within an enumerated list of exemptions such as:

  • for roughly six or more months of the prior year, the property was the principal residence of the owner or another occupant or was occupied in a long-term tenancy;
  • the owner recently purchased the property;
  • the owner died within the past two years; or
  • the property was, in the city’s opinion, undergoing active repairs or renovations for which the requisite permits were issued, and for roughly six months of the year or more this prevented the occupation and normal use of the property.

These exceptions are ostensibly designed to ensure that the tax essentially only applies to residential properties left vacant for no valid reason. An exemption should be available in most “normal” situations where a residential property serves as someone’s home. But there are many situations that will not be captured by the exemptions, even though the property in question is being used as a home.

As a result, homeowners should take care not to fall into a pitfall. These include:

  • Owners/occupants with poor documentation: If audited, a homeowner will likely be asked to prove the status of their property by providing official documents (g., a driver’s license or health card, or important mail like a Notice of Assessment from the Canada Revenue Agency) with their address listed. This could create issues if an owner or tenant does not use their home as their mailing address for all purposes. For example, a student who lives in a rental apartment for 8 months of the year may prefer to have important mail sent to their parents’ address; same with businessowners and their workplace.
  • New owners of formerly vacant properties: There is no exemption for new owners who acquire a property that was formerly vacant and has an outstanding tax liability. In this regard, it is critical to note that the tax runs with the land and is not a personal obligation tied to a particular owner. Accordingly, a buyer might inherit an unpaid assessment issued for a prior year. Perhaps more concerning, they might also be audited for a year that was completed before they acquired the property. Realtors and real estate lawyers should be particularly attune to this issue.
  • Builders with permit/construction issues: As the bylaws are currently drafted, the “builder” exemption is essentially only available if a permit has been granted, leaving homeowners at the mercy of a notoriously slow permit approval process.