Throughout the latter part of 2021, the Canadian government, alongside the Department of Finance, were planning a proposed Underused Housing Tax (UHT) or Vacancy Tax, which sought to assist in alleviating the pressure on Canada’s red-hot housing market.
The Underused Housing Tax Act (UHTA) was introduced as a federal measure to impose an annual tax on vacant or underused housing, aiming to make housing more accessible for residents.
The Vacancy Tax planning included the necessary government departments, including various stakeholders and interested members of the public.
A consultation was held between August 2021 and December 2021, which allowed members of the public and other stakeholders to approach the Department of Finance on any type of feedback on the then-proposed tax plan.
By the time the government announced the Budget 2021, the new vacancy tax or UHT was set to take effect as of 1 January 2022.
The new tax bylaw is a way for the Canadian government and interested stakeholders to have better control over housing supply and demand.
What Is a Vacancy Tax
The vacancy tax will apply to all residential properties that are underused or not used as the owner’s principal residence.
The current tax rate, which is still only a recommended rate, is 1% of the house or property’s current value assessment.
While the new bylaw has been implemented since the start of 2022, residential homeowners will have a limited window to declare any secondary homes to ensure they remain compliant with both federal and provincial regulations.
How the Vacant Home Tax Works
To ensure the Canadian housing market does not experience ongoing price increases and soaring rent hikes by landlords and property owners, the government has now imposed a 1% tax on vacant or underused housing.
The tax amount paid will be based upon 1% of the property’s current value assessment during the time the house or property is vacant. Taxed homes and property will include non-resident and non-Canadian property or real estate owners.
A homeowner or real estate owner will only be liable to pay the 1% tax rate if the home has been unoccupied for more than 6 months during the previous calendar year.
Meaning, that if a property or home is underused or vacant for more than 6 months after 1 January 2022, the owner will be liable to the vacancy tax the following year.
Perhaps the vacant home tax isn’t the good news any secondary homeowner would want to hear, but it does, however, now make it easier for those who are struggling to find suitable places to live in dense urban areas.
If a property owner finds that their residential properties are valued at CAD 1.7 million and are unoccupied for more than six months, the owner will then need to pay up to CAD 17,000 in UHT. The taxes will need to be paid once a property or homeowner declares the property vacant or unused.
Property Status Type
While each province will govern different rules and regulations regarding the vacant home tax, in some metropolitan areas, such as the City of Toronto, homeowners will need to inform the city council whether their home is occupied or vacant.
Based on the occupancy and home status, the city will then issue a tax bill. To declare the property status, homeowners can use their 21-digit assessment roll number, which is found on a property tax bill or property tax account statement.
Additionally, a declaration form can be found online through the city’s online portal, or residents can phone 311 to receive a declaration form by mail. Whichever method you choose, you will need to ensure that the forms are completed and returned to the city council before the due date, or else you may be fined.
The property status will need to be declared, and homeowners are expected to indicate whether a home is vacant or currently occupied.
Property occupied as a principal residence by homeowner
Homeowners reside in the house for more than 6 months of every tax year and are considered the principal residence.
Permanent residents are also considered in the same category as Canadian citizens for the purposes of the vacancy tax.
Property occupied by a tenant
The property is occupied by a tenant or resident that rents the property for at least 30 days and considers it their principal residence. Tenants must live for at least 6 months of the tax year.
Property occupied as a principal residence by a permitted occupant
Occupants that live and reside on a property as their main home for six months of the year without paying rent or subletting the house. The homeowner has given legal permission to these occupants to reside on the property without any financial obligations.
Unoccupied and determined unoccupied
Homeowners who own a second home but are unoccupied for the majority of the year will need to declare it as vacant or determined vacant on their status declaration. Even if a property is reviewed for an audit or complaint, it will then be considered vacant once the review has been finalized. If there is a dispute about the property’s status, homeowners can file a Vacant Home Tax Notice of Complaint to challenge the assessment.
Unoccupied with eligible exemptions
Homeowners may declare their property status as vacant only under special circumstances.
How to Declare
Those property owners who may be exempt from paying any vacancy tax do not have to declare any underused property. Certain exemptions apply to Canadian corporations listed on a stock exchange for Canadian income tax purposes.
Declaration Time Line
Property owners who have more than one residential dwelling that is not being used as the principal residential address will need to declare all underused property by 31 March. They then have until 2 July to pay the outstanding 1%.
Each province will govern a specific timeframe, which will indicate the dates for certain districts and municipalities.
Foreign owners will by law, also need to declare any home tax and their home’s occupancy status to ensure that it meets the council’s review and the assessed value of any residential home is declared.
Exemptions to the Empty Home Tax
There are a few exemptions, and property owners can indicate them on their declaration. Exemptions apply to the owner’s death, if the real estate or homeowner is undergoing any medical care, or if any renovations are being completed to the house. Registered owner employment contracts can be used as supporting documentation for tax exemptions.
Additional exemptions may include any repairs or alterations being completed on the property. In this case, it’s important to note that the property may not be occupied during repair, building and contracting permits will need to be submitted, and work being completed is done safely and efficiently.
There is also the exemption when a property is in the legal transfer of ownership process. However, this does not include changing names, adding a secondary name or removing a person from the property deed.
Some homeowners can also declare the property to be occupied for full-time employment. This entails the property being used for work-related activities for a minimum of 6 months by the owner, who does not currently reside within the area or city.
Finally, the city council may often submit a court order to declare a property as vacant for at least six months. During this period, homeowners may declare the property as being unoccupied, with the exemption of the court order.
Tax Credits
Some provinces may set up different tax credits for homeowners who declare a second property or home that is not being used as the principal address. Council-approved empty homes and homeowners will be eligible for a tax credit of roughly CAD 2,000 on a secondary home or property.
The CAD 2,000 tax credit is only limited to one owner or per property in the event of multiple owners per year.
Additionally, satellite families may also be eligible for tax credits, depending on the city in which their residence is located. If the house is considered vacant, the city council will be able to decide on speculation and vacancy tax, but circumstances may vary depending on each provincial government.
How to Pay the Vacant Property Tax
Secondary homeowners have a few options when it comes to paying their vacancy taxes. Payments can be made after the declaration through an official government portal or website, any bank or financial institution via a direct deposit, by mail, or at selected government offices.
Additionally, residential property bank statements can be used to demonstrate recurring rental income for tax purposes.
Assessment for The Speculation and Vacancy Tax under the Underused Housing Tax Act
Secondary homeowners will need to declare their property individually, even if the property has more than one owner, even if it’s a spouse or relative. The tax would then apply depending on the owner’s residency status, how the property is used, and how or where owners declare their income.
Change of Homeownership
Owners that are currently selling their property will be held responsible for all ongoing property taxes. Any person who sells their property between January 1, and February 2, will need to complete a property status declaration. Only after February 3 will buyers of new property be held responsible for submitting a new declaration for the following year.
Sellers will need to provide buyers with a copy of the declaration and an additional declaration that stipulates whether the property has been occupied or left vacant for more than 6 months of the tax year.
During the closing period, buyers can receive a transfer of legal ownership exemption from the city council, which will exclude them from having to pay taxes.
Final Thoughts
Vacancy Tax is a way for the government to better assess the current housing market and ensure that rising prices and rents are kept to a minimum as supply and demand issues have left the property and real estate market in a short squeeze.
With too much demand and not enough supply, prices have been out of control and have become unreachable for some Canadian residents. The proposed tax of 1% applies to both residents and non-Canadian residents who own a secondary home. Canadian corporations listed on a Canadian stock exchange have specific exemptions under the Vacancy Tax. Consult a Toronto property management company to help with any specific questions that you might have.
