Vacancy tax update for Toronto properties

This article was written by Segal GCSE’s tax team, as part of the Quarterly Canadian Update, a newsletter published by
Canadian members
of
Moore North America
. This article on Toronto’s Vacancy Tax (VLT) and Underutilized Dwelling Tax (UDT) is part of our mission to be your partner in success by keeping you informed.

Two new taxes for Toronto, Ontario homeowners

In 2023, Toronto homeowners faced two new mandatory declarations for properties potentially underutilized as residences in 2022:

1. Federal tax on under-utilized housing(TLSU) declaration
2. The City of Toronto’s Vacancy Tax Return (VTR)

The two mandatory declarations have a lot in common, and it’s quite possible that the distinction is lost on some taxpayers. In both cases, reporting is based on occupancy status in the previous year (i.e. 2023 reporting is based on 2022 occupancy status).

Failure to declare a vacant dwelling

Failure to report either or both of these may result in significant penalties. In this event, TLSU provides for a minimum penalty of $5,000 for individuals and $10,000 for other owners. A property owner who fails to file a VLT return is considered to be the owner of a vacant dwelling and is subject to a VLT equal to 1% of the assessed value of the property, subject to an appeal process to overturn the VLT.

Federal tax on underutilized housing

In recent months, attention has focused on the new Underutilized Dwelling Tax(UDT) and its 2022 filing deadline, which has been extended several times, most recently to April 30, 2024. It can be easy to forget that the VLT reporting deadline is just around the corner. The Internet portal for 2024 is already online and can be used to make declarations for 2023 occupancy status.

Toronto Vacancy Tax

The following overview highlights only the major changes to Toronto’s vacant unit tax (VLT) since the last filing season.

To complete the annual declaration, the owner needs a 21-digit assessment roll number and a client number, which appear on your property tax bill or statement. A property occupied for more than six months during the previous year by the owner or by a tenant is exempt from tax. For the 2024 reporting season, a tenant is anyone who rents a property to operate a business for a period of more than 30 days and anyone who occupies a property as a personal residence.

Exemptions

The tax has a few specific exemptions, including for owners of long-term care homes, properties undergoing repairs or renovations, or vacancy caused by the owner’s death.

The requirement to meet the exemption for a property undergoing repairs and renovations has been changed from a requirement to obtain notice from the Senior Construction Manager and General Manager, Toronto Building, to a requirement that the repairs or renovations be carried out actively and without unnecessary delay.

What are the differences between the two taxes?

Every owner of a residential property must file a VLT declaration. This is different from the TLSU, which exempts certain people (such as Canadian residents and citizens) from having to complete the declaration.

While several owners of the same property may be subject to the same TLSU declaration obligation, only one TLV declaration is required for each property. It should also be noted that no VLT declaration is required if :

• The property has not yet been appraised;
• The property is classified as multi-residential, commercial or industrial;
• The property is classified by MPAC as a vacant lot, parking space or condominium locker.

A further exemption of up to two consecutive tax years is provided for newly built vacant dwellings.

In brief

Owners of properties subject to the tax will receive a Vacancy Tax Notice at the end of March, and payment will now be due in three installments, on May 15, June 17 and July 15, 2024, instead of the previous deadlines, which fell at the beginning of those months.

For properties in 2022 and 2023, a tax equivalent to 1% of the current value assessment (CVA) will be levied on all Toronto residences that are declared, deemed or determined to be vacant for more than six months during the previous year. For example, if the CVA of your property is $1,000,000, the amount of tax charged will be $10,000 (1% of $1,000,000). To date, the TLSU rate remains at 1%.

For vacancies in 2024 and subsequent years, a tax equivalent to 3% of the CVA will be levied on all residences in Toronto that are declared, deemed or determined to be vacant for more than six months during the previous year. For example, if the CVA of your property is $1,000,000, the amount of tax charged will be $30,000 (3% of $1,000,000).

The tax is based on the property’s occupancy status and the previous year’s EVA. For example, if the dwelling is vacant in 2023, the tax will be calculated based on the 2023 CVA and will be payable in 2024. If the declaration is not submitted on time, the property is considered vacant and subject to tax on vacant dwellings. As a result, it is costly to miss the filing deadline, which has been extended from the second working day of February to the last day of February.

Starting January¹, 2024, a fee of $21.24 will be charged if the declaration of occupancy status is not submitted by the declaration deadline. This fee is intended to cover the costs of managing the declaration program.

The City of Toronto collected approximately $54 million in VLTs on 2,161 declared units and 17,437 deemed vacant units. However, the figures should be revised downwards once all outstanding appeals have been resolved. Even if the assessed VLT is overturned, the appeal process is stressful and costly, which is why it’s a good idea to file this relatively simple declaration on time.