Here come Canada’s Empty Home Taxes

Written by Posted On Tuesday, 23 November 2021 00:00

A recent report by the British Columbia government says its Speculation and Vacancy Tax raised $81 million in 2020, with foreign owners footing most of the bill.

That caught the attention of the federal government, which plans to implement a national “underused housing tax” on January 1, 2022. Toronto and Ottawa will soon implement their own empty house taxes and other municipalities are thinking of following suit.

Vancouver was the first municipality to impose the tax in 2016. It launched as a levy of one per cent of a property’s assessed taxable value but has since increased to three per cent. On top of that, British Columbia has a speculation and vacancy tax of 0.5 per cent to two per cent, depending on the owner, in certain regions of the province.

The federal tax is proposed at one per cent of the value of the property, as are the Toronto and Ottawa taxes.

“In B.C. and across the country, a combination of factors, including low interest rates, changing preferences and low supply have added to an already volatile housing market. Through measures like the speculation and vacancy tax we are taking action and turning empty houses into rental homes for people, while making sure that we continue to build a record level of homes as part of our 10-year housing plan,” says B.C. Minister of Finance Selina Robinson.

The B.C. report says the tax is doing what it was intended to do. “An increasing number of property owners who are subject to the tax, particularly those at the highest rate, are selling or renting their properties,” says the B.C government in a news release. “Behaviour changes from a variety of measures are adding homes to the market.”

The report says that during the last two years, the tax, along with various other government policies, have encouraged owners of more than 18,000 vacant units to rent them out.

However, critics are not so sure that these taxes make much of a difference in the rental market or to make housing more affordable.

“Governments are almost always too optimistic about the impact of their taxes, relying on them for political popularity, even if they have little effect,” wrote Daniel Tsai, who teaches law at the University of Toronto and Ryerson University, in an op-ed column for the Globe and Mail. He says the City of Vancouver originally estimated there were more than 10,000 empty homes, but the first report after the tax was implemented applied to only 2,538 homes. “Vancouver also estimated the tax would increase the city’s rental vacancy rate, only to find a negligible increase,” Tsai says.

He adds,  “In 2019, B.C. generated only $88-million from the levy, far below its predicted revenue of $185-million. In 2020, Vancouver housing prices increased nine per cent instead of going down.”

Tsai says that rather than implementing a “symbolic and ineffective tax” the federal government should instead concentrate on “targeted mortgage underwriting policies, fair bidding processes and a tax system that makes renting a substitute for owning a home.”

The proposed Toronto tax will use a similar method to that of the B.C. taxes.

Each year, all property owners must self-declare the status of their residential homes. If they are living in their own homes, nothing further is required from them. A unit will be considered vacant if it has been unoccupied for more than six months during the previous calendar year. Owners who declare their properties are vacant will be required to pay the tax.

There are a number of exemptions – the federal tax has 12 proposed exemptions.

Among the ways owners will avoid the tax is if the property is undergoing redevelopment or a major renovation; if the registered owner has died; if the owner is in care at a different location; if there has been transfer of legal ownership of the property during the year; if the property is uninhabitable; or if there is a court order impacting the property, for example.

The City of Toronto says, “Principal residences may be left unoccupied for periods of time without being subject to the tax, which would offer protection from the tax to most snowbirds.”

There will be penalties for owners that do not declare vacant properties or pay the tax, along with a dispute resolution process.

Although all of the municipalities planning the tax believe they will raise more than enough funds to cover its administration and enforcement, they say raising revenue is not the main reason for implementing the program.

“The goal of a vacant home tax is to change the behaviours of homeowners who leave their homes unoccupied – compelling them to sell or rent them out to increase the housing supply or pay a tax to keep them vacant,” says the City of Toronto. 

In B.C., the funds raised by the speculation and vacancy tax goes into a housing priority initiatives special account, and must be used to fund housing, shelter or rental initiatives in the five regions where the tax is applied.

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Jim Adair

Jim Adair has been writing about Canadian real estate, home building and renovation issues for more than 40 years. He is the former editor of Canada’s leading trade magazine for real estate professionals, as well as several home building, décor and renovation titles. You can contact him at [email protected]

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