VACANT HOME TAXATION IN ONTARIO OBSERVATIONS

FROM VANCOUVER’S EXPERIENCE

Scott Powell, AMAA, M.I.M.A. Director, Yeoman & Company Paralegal Professional Corporation

In December 2022 Royal Bank (RBC) released a report¹ on housing affordability in Canada. In that report the Aggregate Affordability Measure rose to 62.7% (ownership costs as a percentage of median household income), the worst result in the history of the study. Moreover, the increase in the index rose 14.5 percentage points in just one year, owed in no small part to inflationary pressures and interest rate hikes. This data emphasizes the need for governments, politicians, and industry professionals to address two questions.

1. How do we increase the availability of housing?

2. How do we accelerate development of affordable housing?

As a means of addressing these challenges, in 2017 The City of Vancouver introduced the Empty Homes Tax (EHT) which was intended to “return empty or under-utilized properties to use as long-term rental homes for people who live and work in Vancouver”² and “relieve pressure on Vancouver’s rental housing market, as our city has one of the lowest rental vacancy rates in Canada.¹” A year later, in 2018, the BC Government instituted a Speculation and Vacancy Tax which is similar (though not identical) to Vancouver’s EHT. Six years later Vancouver’s EHT is providing compelling data through its annual reports allowing us to evaluate whether it is achieving the intended targets.

Considerations for Ontario VHT Programs

1. Vancouver’s EHT rate will increase to 5% of the assessed value of the property effective 2023 despite a measurable drop in the number of vacant (and taxed) properties. This is substantially higher than the 1% applied in Toronto and a far cry from where the program started in Vancouver back in 2017 (also 1%). Given the success of the program in Vancouver there is good reason to believe that, in future years, Toronto’s VHT may follow a similar tax rate trajectory.

2. The number of jurisdictions in British Columbia’s lower mainland which have (or are on the path towards) implemented a Speculation and Vacancy Tax (the provincial government’s version of Vancouver’s EHT) is growing. In 2023, Speculation and Vacancy Tax was expanded to include Lions Bay and Squamish, as well as North Cowichan, Duncan, Ladysmith, and Lake Cowichan. Ontario homeowners in areas outside Toronto and Ottawa should anticipate an expansion of where the VHT program is applied.

3. The efficiency of tax administration has much to do with the ease by which taxpayers can self-report and the accuracy of the reporting submitted. Additionally, the scenarios which exclude a particular property should be reflective of the intent of the program; taxing only those who should (in the minds of the politicians and administrations) be taxed. Below is a comparison of the exclusions offered in both Toronto and Vancouver:

(www.vancouver.ca/home-property-development/why-an-empty-homes-tax.aspx)²

Given the impact of the Vancouver EHT program, it is not surprising that other jurisdictions have looked to this strategy to address both the immediate need for housing, and to collect the revenue necessary to support affordable housing initiatives. In fact, starting in 2023, the City of Toronto and the City of Ottawa are instituting a Vacant Home Tax (VHT) with a similar framework and targets to the BC models.

At a high level the Toronto model operates as follows:

• A property is considered vacant if it is not used as the principal residence by the owner(s) or any permitted occupant(s) or was unoccupied for a total of six months or more during the previous calendar year.

• A Vacant Home Tax of one percent of the Current Value Assessment (CVA) is imposed on all Toronto residences that are declared, deemed, or determined vacant.³

While there is a great deal of similarity between the Vancouver and Toronto models there are two key differences evident on a macro-level:

• The BC/Vancouver model has had the benefit of 6 years to be tested, refined, and indeed expanded (both in the taxation rate and the geographic area in which in applies).

• While both programs leverage the property assessment framework to calculate the tax, the assessment systems in BC and Ontario are vastly different.

As Toronto’s VHT evolves it will be important that the exemptions permitted within the program are adjusted as well.

4. Both Vancouver’s EHT and Toronto’s VHT are calculated on the assessment values for each property. However, the assessment frameworks in British Columbia and Ontario differ greatly. In British Columbia, assessments are prepared annually while Ontario is still operating on a 2016 valuation date (7 years ago). As a result, the VHT applied in 2023 for Toronto will not be reflective of current property values. For context – the average single detached house price in Toronto in 2016 was $730,000 while in 2022 it rose to $1.02Million, an increase of 39.7%.⁴ When the next reassessment in Ontario finally occurs the impact of the VHT will be even more significant.

5. Revisions made to assessments in British Columbia are mostly resolved in advance of the EHT being calculated. In Ontario, revisions occur throughout the year (and for previous years), and the assessment appeal system takes far longer to resolve. As a result, the VHT in Toronto will be levied on assessments which are not as solidified as in British Columbia. It will be important to have a mechanism to ensuring the accuracy of past VHT liabilities considering future assessment changes.

The Vacancy/Empty Home Tax is not a silver bullet to solve the housing problems that major cities are experiencing in Canada. However, it is one more tool in the toolbox. There is strong evidence from the BC/Vancouver model that this tax system can be effective. However, time will tell if the Ontario system has implemented the learnings from British Columbia effectively and if the assessment framework is robust enough to support it. As Toronto’s VHT evolves it will be important that the exemptions permitted within the program are adjusted as well.

1. https://thoughtleadership.rbc.com/homebuyer-blues-dreadful-affordability-gets-worse-in-canada/

2. www.vancouver.ca/home-property-development/why-an-empty-homes-tax.aspx

3. https://www.toronto.ca/services-payments/property-taxes-utilities/vacant-home-tax/

4. https://creastats.crea.ca/mls/treb-median-price