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MBB LAW INSIGHTS SERIES - REAL ESTATE

Toronto Vacant Home Tax

Background

As of January 1, 2022, City of Toronto’s By-law 97-2022 supporting the new Vacant Home Tax (VHT) came into effect. The goal of the VHT is to increase the supply of housing by discouraging owners from leaving their residential properties unoccupied.

Mandatory Declaration of Occupancy Status

All residential property owners in Toronto will be required to declare the status of their properties annually, even if they live there. The declaration will determine whether the VHT applies and is payable.

For residential properties that are occupied, but not by the owners, owners will be required to submit information about tenants and/or permitted occupants when making the declaration.

The deadline to declare a property’s 2022 occupancy status is February 2, 2023. Homeowners are required to make the declaration through the City’s secure online declaration portal:

https://www.toronto.ca/services-payments/property-taxes-utilities/vacant-home-tax/vacant-home-tax-declaration/

VHT Calculation

A VHT of one percent of the Current Value Assessment (CVA) will be imposed on all Toronto residences that are declared, deemed or determined vacant in aggregate for more than six months during the previous year. For example, if the CVA of your property is $1,000,000, the tax amount billed would be $10,000 (1% x $1,000,000).

The tax is based on the property’s occupancy status for the previous year. For example, if the home is vacant in 2022 the tax will become payable in 2023.

Principal Residence Not Subject to VHT

“Principal Residence”

A “principal residence” is a residential unit occupied by an individual person, either alone or jointly with others, where the individual person is ordinarily a resident. A person may only have one principal residence, but a residential unit may be the principal residence of more than one person.

A principal residence is not subject to the VHT. For owners who own more than one home, only one of their homes will be considered their principal residence. All other homes owned by the owner are considered to be non-principal residences which shall be subject to the VHT unless it is either:

  • designated as the principal residence of a family member or friend for at least six months of the prior calendar year; or
  • rented out to a tenant, for a term of at least 30 days to occupy the home. The property must be occupied in aggregate for at least six months of the prior calendar year.

“Vacant” or “Deemed Vacant” Residential Units

A residential unit that is not a principal residence shall be:

  • declared “vacant” if it has been unoccupied in aggregate for more than six months during the prior calendar year; or
  • “deemed vacant” if the owner fails to make the declaration of occupancy status.

Vacant or deemed vacant residential units are subject to the VHT.

Exemptions from the VHT

The By-law has made a few exemptions from the VHT requirements, including situations where :

  • the home is undergoing repairs or renovations;
  • the principal resident is residing in a hospital;
  • the legal ownership of the vacant unit has been transferred to an arm’s length transferee; or
  • the homeowner has died.

No tax is payable by a homeowner in respect of a vacant residential unit if any of the above applies. However, if the residential unit is deemed vacant due to the owner’s failure to make the declaration of occupancy status, the above exemptions will not apply, and the homeowner will be subject to the VHT regardless of the above exemptions.

Late Declarations

If the property status declaration is not made by the declaration deadline of February 2, 2023, a fine of $250 will be issued.

Failure to make a declaration will result in the home being deemed vacant. Once deemed vacant, the home will be subject to the VHT.

The By-law also includes provisions for penalties for failure to pay and fines for various offences.

If you want to know more about the VHT, please contact us.

Underused Housing Tax

Background

The Underused Housing Tax Act imposes an annual 1% underused housing tax (UHT) on the value of vacant and underused residential properties owned directly or indirectly by those who are not Canadian citizen or a permanent resident of Canada. It became effective on January 1, 2022, and the first tax return for the year-end December 31, 2022 is due on April 30, 2023.

Mandatory Declaration by Non-Canadian Residential Property Owners

Every owner of a residential property, other than an “excluded owner”, must file an annual declaration with the Canada Revenue Agency (CRA) for each residential property owned.

“Excluded Owners”

An “excluded owner” is not subject to the UHT. Excluded owners include the following, as of December 31:

  • Canadian citizens and permanent residents of Canada;
  • Corporations listed on a Canadian stock exchange;
  • Registered charities;
  • Cooperative housing corporations;
  • Indigenous governing bodies or corporations owned by Indigenous governing bodies;
  • Municipalities or corporations owned by municipalities;
  • Government of Canada or an agent of the Government of Canada; and
  • Universities, public colleges, school authorities, hospital authorities.

Private corporations, partnerships, and trusts are not excluded owners and, therefore, are subject to filing an annual UHT declaration if they own a residential property, even if there is no UHT owing.

Residential Properties Located in Canada Subject to the UHT

The UHT applies to every legal owner of “residential properties” located in Canada unless the owners are excluded owners or if an exemption applies.

“Residential properties” include:

  • Detached homes;
  • Detached homes with up to three units (e.g., duplex, triplex);
  • Semi-detached homes;
  • Row houses; and
  • Condominiums.

Exemptions

If an owner is not an excluded owner, the residential property owned may be exempt from the UHT. These exemptions include:

Primary Place of Residence
  • No UHT is payable if the residential property is the primary place of residence of:
    1. The owner, or the owner’s spouse or common-law partner; or
    2. A child of the owner or the owner’s spouse or common-law partner, who occupies the residential property for the purpose of authorized study at an institution designated to host international students.
  • Where an owner owns more than one residential property, only one property can be declared as a primary place of residence.
Qualifying Occupancy
  •  
  • No UHT is payable if the residential property is occupied by one of the following individuals in periods of at least one month and in aggregate for at least six months (180 days) during the year.
  • Such individual includes an individual who:
    • deals at arm’s length with the owner and any spouse or common-law partner of the owner, under an agreement evidenced in writing;
    • does not deal at arm’s length with the owner or with any spouse or common-law partner, and who is given continuous occupancy of the dwelling unit under an agreement in writing, and for consideration that is not below the fair rent for the residential property;
    • is the owner or the owner’s spouse or common-law partner, who is in Canada for the purpose of pursuing authorized work under a Canadian work permit, and who occupies the dwelling unit in relation to that purpose; or
    • is a spouse, common-law partner, parent, or child of the owner and who is citizen or permanent resident.
  • Where an owner or their spouse have declared that one of their properties as their primary place of residence, they cannot declare qualifying occupancy for other properties they own.
Specified Canadian corporation
  • No UHT is payable for a calendar year if the residential property is owned by a Canadian corporation of which foreign individuals or corporations do not own 10% or more of the votes or equity value.
Partner of specified Canadian partnership
  • No UHT is payable for a calendar year if the owner holds an interest in the property as a partner of a specified Canadian partnership.
  • A specified Canadian partnership means a partnership, each member of which, is an excluded owner.

Trustee of specified Canadian trust

 

  • No UHT is payable for a calendar year if the owner holds the interest in the property as trustee of a specified Canadian trust.
  • A specified Canadian trust means a trust under which each beneficiary is an excluded owner.
Uninhabitable property
  • No UHT is payable for a calendar year if the residential property is uninhabitable for a portion of the year and unsuitable for year-round use.
Ongoing renovations
  • No UHT is payable for a calendar year if the residential property is uninhabitable for at least four months of the calendar year due to the continuing renovation of the residence.
Acquisition of interest
  • No UHT is payable for the calendar year the owner first acquires an interest in the property.
Deceased owner and other owner
  • If an owner of a residential property dies, their legal or personal representative would be exempt for the calendar year; If an owner of a property dies and has at least 25% interest in the property, the other owner would be exempt for the calendar year and subsequent calendar year.
Newly constructed property
  • No UHT is payable for a calendar year if the residential property is newly constructed and not substantially completed before April 1 of the calendar year.

Owners who do not qualify as excluded owners must file a UHT declaration if they own a residential property and claim the exemption, even if no UHT is payable.

How Much Is the UHT?

The UHT is 1% of the home’s taxable value or 1% of its most recent sale price, whichever is greater. Owners can also file an election between January 1 and April 30 of the following calendar year to use the property’s fair market value to determine the owing UHT and if they can obtain an appraisal.

If two or more individuals hold title to a property, each owner will be responsible for the UHT based on their ownership interest.

Failure to File Declarations

If an owner fails to file a declaration in respect of a residential property for a calendar year, the owner would not be entitled to the exemptions.

When assessing the owner for UHT and penalties, the CRA would have the discretion to use the fair market value of the property at the time an assessment is issued in calculating the amounts owing.

Failure by an owner to file a declaration in respect of a property for a calendar year could also result in significant consequences for the owner, as well as penalties and interest.

For further details, please contact us.