Are You Required To Pay Toronto’s Vacant Home Tax?
By matt mulholland
The deadline to declare your residential property's occupancy status for 2022 was February 2, 2023. However, the City of Toronto extended it to February 28, 2023 because over 13.3% of property owners still hadn’t completed the Declarations.
Barring any further changes, starting at the end of March 2023, the City will start sending out Notice of Assessments to those required to pay the Vacant Home Tax (otherwise known as the VHT).
For those who declared their residential property as vacant, the assessment will hopefully not be too much of a shock. We discuss what to expect below.
For those who didn't file the declaration in time or did but believed that they would not be subject to the VHT, the Notices will likely come as an unpleasant surprise.
If you do receive a Notice of Assessment, then you should ask yourselves two questions:
First, is your property actually subject to the Vacant Home Tax?
Second, is the amount of Vacant Home Tax you are being asked to pay correct?
We will examine these issues before explaining your options in case you do disagree with the findings of the City.
1. Is your property subject to the Vacant Home Tax (VHT)?
According to By-law 97-2022 (the "By-law"), a Residential Unit is considered a Vacant Unit if any of its Self-contained Units are not occupied as a Principal Residence for six or more months.
When a Tenant occupies a Self-contained Unit, it can be occupied by more than one Tenant provided each has a lease or sublease for a consecutive term of at least 30 days. The aggregate of the Tenants’ occupancy must also be more than six months in the Taxation Year.
A Residential Unit will also be declared Vacant if an Owner does not file the Declaration by the deadline, which, as mentioned above, was extended to February 28, 2023 this year.
However, there are some scenarios where the Unit has been Vacant for more than six months, but being subject to the VHT seems particularly unjust. Therefore, the City has created some exemptions, but how these exemptions will be applied remains to be seen. We will review each of the exemptions below and discuss some of the issues we foresee.
1) Death of the Owner
When the Unit is vacant for six or more months in the Taxation Year or the previous one due to the Owner's death, then the Owner is exempt from the VHT.
A death certificate will be required to rely on this exemption.
2) Repairs and Renovations
When repairs or renovations have prevented occupancy of the Residential Unit for more than six months, provided all the permits have been issued for the repairs or renovations and the City’s Chief Building Official agrees that they are being done without unnecessary delay, then the Owner is exempt from having to pay the VHT.
The Owner relying on this exemption may need to describe the type of project preventing occupancy and copies of relevant building permits.
However, this exemption does provide significant discretion to the City’s Chief Building Official, which may lead to disputes over what the City's Chief Building Official deems an unnecessary delay.
For instance, what about the following:
Is the necessity of the delay based solely on an assessment of the nature of the work, or does it also relate to the cause?
When a supplier has caused unnecessary delays, is the Owner still responsible for VHT?
When a contractor has caused unnecessary delays, is the Owner still responsible for VHT?
What happens when the owner runs out of money and can’t complete the project?
When the Owner disagrees with the finding that something was unnecessary, then the Owner may find themselves navigating the complaint and the appeal process (as discussed below). Moreover, it may result in lawsuits against contractors or others when the Owner believes a third party caused the unnecessary delay.
3) Residing elsewhere due to health
When the Principal Resident is hospitalized, in long-term care, or a resident in a supportive care facility for an aggregate of at least six months during the Taxation Year, the Owner of the Residential Unit will also be exempt from the VHT.
The Owner should have a letter from the facility where the Principal Resident is residing (on the facilities’ letterhead) to prove this. For privacy concerns, the letter should only say that the Principal Resident has resided in the facility for a specific time due to health issues, but does not need to divulge personal or medical information (though the guidelines don’t say this yet).
This exemption "may apply in respect of up to two consecutive Taxation Years," which may cause some issues that don’t yet appear to be addressed by the By-laws. For instance, what happens when a Tenant who is the Principal Resident is hospitalized for over six months in three straight years? Before year three, is the Owner obligated to remove the Tenant from the Unit and will the Landlord and Tenant Board acknowledge this as a valid reason to terminate a tenancy? What happens if the Tenant refuses or is unable to provide a letter to the Owner, is the Owner still required to pay the VHT?
Depending on the situation, the City’s potential refusal to allow an Owner to rely on this exemption may lead to legal and challenges.
4) Property Transferred
When transferring the Vacant Unit to an arm's length transferee in the Taxation Year, the Owner is exempt from the VHT.
To rely on this exemption, the Owner may need to submit a copy of the land transfer deed.
However, the Owner can only rely on this exemption in the year of the transfer. Therefore, if transferring the property at the end of the Taxation Year, the new Owner doesn’t appear to have the protection of the exemption the following year. If not, the buyer may need to find an occupant within six months or ensure they aren’t required to pay the VHT.
5) Occupancy for Employment Purposes
When the Owner requires the Vacant Unit for occupation or employment purposes for an aggregate of at least six months in the Taxation Year, and its Owner also has a Principal Residence outside of the Greater Toronto Area, then the Owner is also exempt from the VHT.
To rely on this exemption, the Owner must be prepared to show proof of residency outside of the Greater Toronto Area and have a signed letter from an employer on their employer’s letterhead or a copy of the employment contract.
It remains to be seen whether the letter simply needs to confirm employment or also state the home in Toronto is required for the employment.
6) Court Order
When a court prohibits occupancy of the Vacant Unit for at least six months of the Taxation Year, the Owner is exempt from the VHT.
In relying on this exemption, it may depend on the court order's wording. Therefore, lawyers should ensure that the order contains precise wording explicitly stating that the Residential Unit must remain vacant. For good measure, it wouldn't hurt to add the words "and exempted from the Vacant Home Tax, per Article 3, Subsection A (6) of City of Toronto By-Law 97-2022.”
Deemed Declaration
As mentioned above, a Residential Unit will also be declared Vacant if an Owner does not file the Declaration by the deadline.
The By-law further states that Owners are not entitled to rely on the exemptions in the case of a deemed vacancy (Article 3, Section C).
It does allow for the reversal of deemed vacancies by way of complaint or appeal; however, we have yet to see whether this is automatic or whether the Owner must first provide reasons for their failure to file.
Failure to make a Declaration and other offences may result in a fine between $250 and $10,000 each, per Article 11 of the By-laws.
2. How is the Vacant Home Tax Calculated? When is it due?
The VHT equals 1% of the current value assessment (CVA) of the Residential Unit, as shown on the most recent assessment as of the Payment Date. For instance, it works out to $10,000 per every $1,000,000. The VHT penalizes homeowners who have a vacant property.
The VHT is due on May 1st of the year after the Taxation Year. For instance, for the Taxatiaon Year of 2022, the VHT is due on May 1, 2023, but the City of Toronto website does say you can pay it over three installements: May, June and July.
Missed payments are subject to an interest rate of 1.25 % on the first day of default and then on the first day of each month thereafter (for as long as taxes or charges remain unpaid).
3. What do you do when you disagree with the findings of the City of Toronto?
Owners are entitled to have the assessment reviewed through a two-stage process.
The first stage is to file a notice of complaint, and the second is to appeal that decision.
You file the complaint with the Chief Financial Officer for the City of Toronto by April of the year after the date that the VHT was to be paid. For instance, for the 2022 Taxation Year, you must file the complaint by April 2024.
There is also a deadline of 90 days to file a complaint in the case of a supplementary assessment.
After receiving the decision from the Chief Financial officer, if you still disagree with the result, you can request an appeal before the City Controller. The deadline for the appeal is 90 days from when the Chief Financial Offer mailed the notice of their response to the complaint to the Owner.
It is unclear how the City of Toronto will handle the complaints or appeals as it hasn’t opened up the procedure yet and isn’t doing so until April. Since almost 300,000 people had yet to file declarations by February 2nd, the system may be severely stretched as people start receiving notices (hopefully, the extension to February 28th helped to lessen this a bit).
The City aims to reduce the number of vacant homes in Toronto by encouraging homeowners to sell or lease out their vacant properties. It hopes it will help to reduce the prices of rentals and purchase prices, but it remains to be seen whether it will have the desired result. Will it drive some of those who have vacant homes underground? Will it punish those with valid reasons for leaving their property vacant? Is this a significant overreach by the City, effectively fining those who decide to leave their property vacant?
Ultimately, will it significantly reduce the number of vacant units in the City of Toronto?
Only time will tell whether it will have the desired results, but, in the meantime, if you or your client have an assessment and do not believe that your property ought to be considered vacant or disagree with the amount of VHT assessed, review the by-laws carefully and meet with a professional to see whether you can rely on an exemption.