by Markus O'Brien Fehr, Chief of Staff
Toronto has moved another step closer towards implementing a new tax on properties sitting empty to encourage more owners to rent them out. Last week, Council approved the framework for a Vacant Homes Tax (VHT) with details to be finalized following further public consultation by the end of this year.
A Vacant Homes Tax is most importantly a tool to encourage the rental of empty homes at a time that rental housing remains in short supply. Increasing availability of rental housing would also address affordability, another issue many are grappling with.
The VHT would apply to any property that is capable of being occupied, but is not the principal residence of an owner, occupier or tenant for six months or more within a calendar year. A number of exemptions will be considered to exclude snowbirds, patients undergoing extended medical care, changes of ownership or properties undergoing significant renovation, among others.
Toronto would use a self-declaration process asking each property owner to declare the use of their property during the previous calendar year. This is similar to the system successfully brought into Vancouver in 2017. Though it would seem natural to use hydro or water use rates as evidence of vacancy, privacy laws in Ontario don't allow for this and require other strategies for enforcement.
Toronto has proposed a 1% tax on the assessed value of vacant properties, similar to the initial rate in Vancouver. In a year that Vancouver is increasing their rate to 3% however, many in Toronto have wondered if we should be adopting a similar rate. After all, doesn't the City need the money?
Revenue generated by the VHT will be directly allocated to affordable housing initiatives in the City. With growing need, additional resources would certainly be helpful.
But with the principal purpose being the occupancy of homes, it's important to set the rate at a level significant enough to provide owners incentive to rent, without being so punitive that they hide vacancies and risk fines or additional fees. A 1% levy, is already more significant that the annual residential property tax rate, set at 0.61% in 2021.
Toronto must also be mindful that the Government of Canada has suggested a similar national program that would run parallel to the VHT in Toronto if implemented, and that the final enactment of the City program is subject to review by the Government of Ontario.
Council has already asked for a review in 2023 with the possibility of adjusting the rate based on the success of the program. John also passed a motion at Council calling on staff to report back on other tools being used in other jurisdictions that are designed to discourage property speculation or the use of housing primarily as an investment commodity.