Empty Home Tax: What It is and How to Avoid It

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 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 homes 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 an dporvincial regulation.

How the Empty Housing 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% empty housing tax.

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 also 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 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.

How to Declare

Those property owners who may be exempt from paying any vacancy tax, do not have to declare their any underused property.

Declaration TimeLine

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 homes tax and their home’s occupancy status to ensure that it meets the council’s review and 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 currently undergoing any medical care, or if there are any renovations currently being completed to the house.

Tax Credits

Some provinces may set up different levels of tax credits for homeowners who declare a second property or home which 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.

Assessment for The Speculation and Vacancy Tax

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.

FAQs

How Do I Avoid Vacancy Tax?

Vacancy tax can be avoided if the owner allows for the occupation of the property, either by themself or a tenant for at least six months per year.

Is There a Vacancy Tax in Toronto?

The Toronto City Council supports the levied amount of 1% on all vacant or underused property and homes within the City of Toronto.

Those who are required to declare any empty homes in Toronto will need to follow the Ontario housing tax system.

What Is the Difference Between Empty Home Tax and Speculation Tax?

Empty home taxes are a form of taxes implemented by the federal or provincial government, whereas speculation tax is a municipal tax. Both seem to work together to ensure that underused homes or empty properties are occupied for a duration of time throughout each year.

Final Thoughts

Vacancy Tax is a way for the government to assess the current housing market better, and to 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.

Sabine Ghali

Sabine Ghali

Helping real estate investors build wealth over time

(905) 268-1000

[email protected]

Sabine Ghali, Managing Director at Buttonwood Property Management, Award Winning Real Estate Broker and an Entrepreneur at heart. Sabine is on a mission to help investors create real estate wealth over time in the Greater Toronto Area. Sabine is published in a number of media outlets, including Toronto Star, The Globe and Mail, Toronto Sun, Entrepreneur, Forbes, and Gulf News, among many others.