In 2022, the Vacant Home Tax (the “VHT”) went into force to levy tax on residential properties in Toronto that are considered vacant. The newly implemented VHT also requires the Toronto homeowners to declare occupancy status of their property every year.
We would like to remind all Toronto homeowners that the deadline to declare the 2023 occupancy status of their residential property is February 29, 2024. Failure to declare may result in automatic assessment of VHT.
What is VHT?
VHT is applicable to all residential homes in Toronto that are underused or not used as the owner’s principal residence. Properties will be considered vacant and will be subject to VHT, if for more than 6 months, the property has not been occupied by its principal owner or by one or more tenants each having a lease period of at least 30 days.
Exemptions to VHT will apply if one of the following criteria is met:
- The registered owner died in the tax year or prior year;
- The property is undergoing renovations or repairs with several conditions;
- The principal resident is in care. The exemption may be claimed for up to two consecutive years;
- Legal ownership has been transferred to an arm’s length buyer in the previous year;
- The vacant property is required for occupation for employment purposes for a total of at least six months, and the owner has a principal residence outside of the Greater Toronto Area; and
- A court order prohibits the occupancy of the vacant property for at least six months.
Mandatory Declaration of Occupancy Status
This applies to all residential property owners in Toronto, even if they live in there or are exempt for VHT. The declaration will determine the occupancy status of property for VHT purpose. If the property owners fail to make the annual declaration by the deadline, the property will be deemed vacant and result in the VHT being assessed with a potential $250 fine. False declarations of occupancy status or failure to provide information when requested may result in a fine of up to $10,000, in addition to payment of the tax.
The declaration will be filed through the City’s secure online declaration portal:
Tax Implication
VHT is calculated at 1% of the property’s current value assessment (CVA) for the year in which the home is vacant. The current CVA is assessed by Municipal Property Assessment Corporation (the “MPAC”) in 2016 and is expected to be reassessed in 2024. Also, proposed amendment is being implemented to increase the VHT from 1% to 3% of CVA in 2024. Therefore, we expect to observe a significant bump in the new CVA and thus VHT, even though the housing market is currently cooling down.
For example, John purchased a property in City of Toronto in 2015. The property has been used as residential rental property. In 2016, the CVA of the property was assessed at $800,000 by MPAC. If John failed to rent out the property for more than 6 months during 2022, he will be subject to a VHT of $8,000 ($800,000 x 1%) unless an exemption applies. Let’s assume the CVA of John’s rental property increases to $1,000,000 in 2025. If John still fails to rent out the property and doesn’t occupy the property as his principal residence for more than 6 months, the VHT will increase from $8,000 to $30,000 ($1,000,000 x 3%).
GG Observation
With the implementation of VHT, we also observed a significant impact on short-term Airbnb hosting. This is because VHT may be applicable if the tenants living in your property(s) do not have a lease more than 30 days. The impact could be more significant in the future given the expected increase in the property CVA and VHT percentage.
The tax implication on turning your properties to Airbnb hosting could be complicated. We have extensive experience in assisting clients with tax planning strategies for real estate investments. If you are looking for more information about potential tax implications on VHT or real estate investments, please contact our tax team.
