Measures have been taken to impose an annual tax on “underused” or “vacant” properties to assist in making housing more accessible to residents. Following multiple consultations with the public and relevant stakeholders, the Underused Housing Tax took effect January 1, 2022.
The measures outlined in the tax bylaw allow the government, alongside stakeholders, to have more efficient control over the housing market, including more agile management to meet housing demand and ensure a sustainable supply of affordable housing.
KEY TAKEAWAYS
- The Underused Housing Tax (UHT) was introduced on January 1, 2022.
- Under the vacant home tax, owners of secondary residences are taxed at an effective tax rate.
- Rates are set at 1% of the houses’ market value following assessment.
- Vacancy taxes are regulated on a provisional basis and aims to alleviate housing market pricing pressure. The Underused Housing Tax (UHT) or Vacancy Tax was introduced by the Canadian Federal Government, alongside the Department of Finance to assist in alleviating pressure in the housing market, and further stabilize real estate prices.
What Is The Vacancy Tax?
The tax bylaw is a measurement that applies to all residential properties that are considered underused or have not been in use by the owner as their principal residence. Currently, the effective tax rate is recommended at 1% of the house or property’s market value following assessment.
Since the bylaw was introduced to the public and then across the broader Canadian tax code, residential property owners are required to declare any secondary residential dwellings to ensure they remain compliant with federal and provincial regulations.
How the Vacant Home Tax Works
The current underused home tax was introduced as a measurement to stabilize residential property and rental prices.
Following record-low interest rates in the aftermath of the pandemic, soaring demand for residential properties pushed prices to new extremes. Additionally, renters across the country were faced with skyrocketing rent, as inflation and interest rates steadily climbed.
The vacant home tax aims to reduce pressure on the housing market by imposing a 1% tax on underused residential property. The total tax amount paid will depend on the property’s current assessment value during the period in which the property is vacant or not inhabited.
All property owners, including citizens, residents, non-residents and non-Canadian real estate owners, are subject to the vacant home tax.
All home and real estate owners will be liable to pay the 1% tax should the home have been unoccupied for more than six months during the previous calendar year. This applies to properties that have been vacant for more than six months following January 1, 2022.
An owner will have to comply with these regulations by declaring a property vacant. Should a property not be declared vacant or have been occupied for a six-month period, the vacant tax rate will not apply.
Property Status Type
Each province may introduce regional rules and regulations following the introduction of the Underused Housing Tax. This would require homeowners and property owners to comply with regional requirements based on where their secondary residence is located.
For instance, in Ontario and the City of Toronto, homeowners will need to inform local city councils of the occupancy status of any secondary residences. They will need to do this by declaring the 21-digital assessment roll number that is located on their property tax account statement.
Additionally, once an occupancy status has been provided, a homeowner may receive a request for assessment, followed by a tax bill.
This process can be completed online or via the regional home tax phone line. Homeowners will need to ensure that all the necessary information is provided and that forms submitted to the city council have been completed before the due date. Homeowners may be subject to additional fines for late submissions.
This is only one example of how the process may work. Property owners will need to inform the local council where a secondary residence is located.
Property Occupied As A Principal Residence By Homeowner
Should an owner reside in a secondary residence for more than six months out of the 12 months in a financial year, then the residence would be considered a principal residence in accordance with current tax bylaws.
Keep in mind that these rules will apply to all permanent residents and non-Canadian property owners.
Property Occupied By A Tenant
The property is occupied by a tenant or resident who 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 determine it as vacant on their status declaration. Should a property be reviewed during an audit process, the property will be considered vacant once the review has been completed.
Should a dispute arise during the auditing process, owners have the right to file a Vacant Home Tax Notice of Complaint.
Unoccupied With Eligible Exemptions
The vacant home tax makes provisions for homeowners to declare their property status as vacant under special circumstances. Encouraging owners of vacant to complete the property tax roll could reduce the burden of allocated to affordable housing initiatives across the country.
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 within a given timeframe.
Each province will govern a specific timeframe, which will indicate the dates for certain districts and municipalities.
Foreign owners will, by law, need to declare any home tax and their property’s occupancy status to ensure that it meets the council’s review and that 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. These exemptions may include the following:
- Death of an owner
- Owner undergoing medical care
- Renovations carried out on the property
- Repairs and alterations completed on the property
- During the legal transfer of ownership
Homeowners may 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.
The city council may submit a court order to declare a property vacant for six months. During this period, a homeowner may declare the property occupied, with exemptions of the court order.
Tax Credits
Some provinces may set up different tax credits for homeowners who declare a second property that is not being used as the principal address. Council-approved empty homes and homeowners will be eligible for a tax credit of roughly $2,000 on a secondary home or property. The tax credit is 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.
Homeowners are responsible for setting vacant home tax reminders and subscribing to get vacant assessments completed in advance.
Change of Homeownership
Owners that are currently selling their property will be held responsible for all ongoing property taxes. The vacant home tax VHT program requires homeowners to complete a property status declaration in accordance with local regulations. Properties vacant are subject to vacant home tax should the necessary requirements not have been met. An assessment will need to be completed and submitted in the following year.
Those looking for residential properties to sell will need to provide buyers with a copy of the declaration, including additional information on whether the property has been occupied or vacant for more than 6 months in the previous 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.
