Redesign of Toronto vacant home tax ‘changing the deck chairs on the Titanic,’ lawyer says

By Ian Burns ·

Law360 Canada (September 27, 2024, 2:56 PM EDT) -- The City of Toronto has issued a plan to revamp its controversial vacant home tax (VHT) after a botched rollout last year, but the recommendations have led to a mixed reaction from some in the legal community.

In 2021, Toronto City Council approved the VHT as a policy tool to help increase housing supply by encouraging residential property owners to rent or sell unoccupied properties. It applies to homes that remain unoccupied for more than six months within a calendar year unless they meet specific exemption criteria. All property owners must submit an annual declaration of their property’s occupancy status, even if they live there. The City recently approved a rate increase to the VHT from one per cent of a residential property’s current value assessment (CVA) to three per cent.

But the rollout of the tax last year proved to be a bit of a boondoggle, with more than 100,000 people getting vacant home tax bills they shouldn’t have. A flood of complaints led to multiple apologies and eventually to the current revamp.

Stephen Conforti, Toronto’s chief financial officer and treasurer, said the City “really didn’t do a good enough job of communicating the need for an annual declaration.”

“I think that was one of the failings,” he said.

Under the new plan, which has yet to be finalized by Toronto City Council, the due date to declare the tax would be extended to the last business day of April of the year following the taxation year in respect of which the declaration is made.

The deadline for the issuance of the notice of tax would be changed to June 1, and the definition of a self-contained unit would be changed from “a dwelling unit which includes a dedicated washroom and kitchen” to “a dwelling unit that is classified as a residential unit by the Municipal Property Assessment Corporation [MPAC], which includes a dedicated washroom and kitchen even if in disrepair.”

The occupancy status of homes can be declared by property owners through a revamped online portal launching on Nov. 1.

Ray Mikkola, a partner at Pallett Valo LLP, said the redesign does “address some of the challenges that were problematic with the system.” He said he felt the changes to the declaration dates would be particularly impactful.

“The process on the website was not as clear as it should have been, and evidence indicates that there’s some people who started the process and couldn’t figure out how to complete it, and just sort of abandoned it,” he said. “There were some issues around timeframes as well — for example, snowbirds would leave in the fall and by the time they came back had already missed the filing deadline. And the next thing they saw was a letter saying their home is deemed to be vacant.”

Mikkola noted Toronto Mayor Olivia Chow at one time brought up the idea of scrapping the tax, but “you don’t see that in this report.”

“It is here to stay because it produces significant tax revenue for the city, and it puts really significant pressure on those owners to put the homes on the market for sale and sell it for what they can get,” he said.

Bob Aaron, Aaron & Aaron

Bob Aaron, Aaron & Aaron

But Bob Aaron of Aaron & Aaron said the recommendations “strike me as changing the deck chairs on the Titanic.”

“This was misconceived at the beginning, and it’s misconceived now,” he said. “I’m actively involved in the real estate market on a daily basis, not only in my own practice but also keeping in touch with colleagues, and I have yet to hear of anyone who has been incentivized by the tax to leave and return their home to the rental market.”

As a result of the tax, Aaron said “ordinary, honest homeowners” are being penalized who “keep their place empty for some legitimate reason.”

“Nobody in their right mind in today’s market would keep a place empty if they didn’t have to. And the units that are remaining empty are not being left that way, because the owner is waiting for the market to go up,” he said. “Nobody would forego rental income or sales proceeds if there wasn’t a good reason and the imposition of this horrible tax is not putting any more ‘empty units’ on the market. I challenge the City of Toronto to produce some statistics that show the tax is working. And in my humble view, if the tax is not working, then there’s no reason to continue it.”

For his part, Mikkola said lawyers who are working with a purchaser in a real estate transaction should tell their client that there is an obligation to file the vacant home tax declaration every year.

“And I think there should be some process whereby, in the course of closing a transaction, you get statutory declarations or something like that from the seller who says they have paid the tax,” he said. “There seems to me to be a bit of a trap for the unwary here.”

More information about Toronto’s vacant home tax can be found here.

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