November 10, 2023 | Danny McMullen and Ema Marcheska

Canada and various municipalities have implemented tax on properties which are kept vacant for a specific period of time. Here is a highlight of the main taxes in Canada and municipalities.

Underused Housing Tax

Canada [1]

What it is?

The Underused Housing Tax is an annual federal 1% tax on the ownership of vacant or underused housing in Canada.

Who is affected?

• Mostly applicable to foreign national (non-citizens of Canada or non-PRs) owners of housing (residential) in Canada
• Some Canadian owners:
  • Affected owners are taxed under this, if there is one of several affected owners of the residential property, each of them must file a separate return for the property.
  • An affected owner includes, but is not limited to, the following owners of a residential property in Canada:
    • A foreign national (that is, an individual who is not a Canadian citizen or permanent resident)
    • An individual who is a Canadian citizen or permanent resident, and who owns a residential property in Canada as a trustee of a trust (other than as a personal representative of a deceased individual, or as a trustee of a mutual fund trust, real estate investment trust, or specified investment flow-through (SIFT) trust for Canadian income tax purposes)
    • An individual who is a Canadian citizen or permanent resident, and who owns a residential property as a partner of a partnership
    • A corporation that is incorporated outside of Canada
    • A Canadian corporation whose shares are not listed on a Canadian stock exchange designated for Canadian income tax purposes
    • A Canadian corporation without share capital

Who is exempt?

• Even if qualify for exemptions you still have to file an Underused Housing Tax Return
• Some affected owners might be exempt if they are:
  • Specified Canadian corporation
  • Partner of a specified Canadian partnership, or a trustee of a specified Canadian trust*
  • New owner in the calendar year
  • Deceased owner, or a co-owner or personal representative of a deceased owner
  • You may be exempt from paying the tax if the property is:
    • Used as a primary place of residence (must be the primary place of residence of any of the following for the calendar year: You or your spouse or common-law partner OR Your child, or your spouse’s or common-law partner’s child, who occupies the residential property while pursuing authorized study at a designated learning institution
    • Used for qualifying occupancy (must be occupied by a qualifying occupant for one or more qualifying occupancy periods totaling at least 180 days in the calendar year.)
  • If the property is any of the following:
    • Newly constructed
    • Not suitable to be lived in year-round, or seasonally inaccessible
    • Uninhabitable for a certain number of days because of a disaster or hazardous conditions, or a renovation
  • If individuals affected owners have the property as a vacation home located in an eligible area of Canada, and used at least 28 days in the calendar year. To determine if eligible area use this tool. 

Municipal Vacant Tax

Toronto [2]

What it is?

It is a tax on vacant homes of one percent (1%) of the Current Value Assessment of the home, for 2022 and 2023 taxation years. For 2024 and future taxation years the tax is increased and stands at three percent (3%) of the Current Value Assessment of the home.

Owners must declare the occupancy status of the property on the online portal or by mail.

Who is affected?

A property is considered vacant if:

• the property was not the principal residence of the owner or any permitted occupants or was not occupied by tenants for a total of six months or more
• the property was not eligible for an exemption
• the property was deemed vacant because the owner failed to submit a declaration of occupancy status or any required supporting documentation

Who is exempt?

The tax does not apply to:

• properties that are the principal residence of the owner
• properties that are the principal residence of a permitted occupant or occupied by a tenant (including business tenants)
• properties that qualify for an exemption

Exemptions:

• Snowbirds and other extended-stay travelers, if the property was the primary residence of the owner for at least six months in the year, does not take into account the physical occupancy of the property but the status of the property.
• If there is a court order in force which prohibits the property from being occupied for at least six months of the taxation year
• If the owner has died and therefore the property was vacant for six or more months due to the owner’s death. This exception can be claimed for up to three consecutive taxation years.
• If property is undergoing permitted repairs and renovations in a timely fashion and due to this the occupation of the property is prevented
• If the principal resident of the property is in care, this exemption can be claimed for up to two consecutive taxation years
• If the legal ownership of the property was transferred in the taxation year being declared
• If the property is used for a total of six months for employment purposes and the owner has a principle residence outside of the Greater Toronto Area
• Developers who are registered owners of the property, can be exempt for properties, which are actively offered for sale, that have never been occupier and remain unsold for up to two consecutive taxation years.

Ottawa [3]

What it is?

If the residential property has been declared or deemed vacant for more than 184 days in the previous calendar year and is does not have any applicable exemptions, then the Vacant Unit Tax will be applied to your property. The first year the tax will be payable is 2023, based on the status of the property in 2022. The tax will be calculated at a rate of 1% of the property’s assessed value.

Who is affected?

Vacant units are taxed. The city of Ottawa considered a unit vacant if it has been unoccupied for more than 184 days during the previous calendar year and it was not used as a primary residence. Only applicable to properties in the residential tax class, excluding commercial,

Who is exempt?

If the property has been vacant for at least 184 days in the previous year, the owner might be eligible for an exception of the tax if:

• There was 100% transfer of an interest in the property, in the previous year
• There is a court or government order prohibiting the occupancy of the property
• If the owner has passed away, the year of death and the subsequent year are exempt
• If the owner is in long-term or supportive care facility or in the hospital
• If the property is undergoing major renovation which will prohibit the property from being occupied, this can be coupled with tenant vacancy and vacancies for construction/renovation totally at least 184 days
• If the property is a cottage rental, with a valid host permit, in a rural area and has been rented for at least 100 days in the previous year.

Possible New Regions

Hamilton [4]

As of 2024, the city of Hamilton as well has a Vacant Unit Tax.

What it is?

If the residential property is declared vacant for more than 183 days in the previous calendar year and does not meet one of the exceptions, then the Vacant Unit Tax will be applied.  The tax is one percent (1%) of the property’s assessed value.

Who is affected?

Vacant units are subject to the tax, if they have been vacant for more than 183 days in the taxable year.  The City of Hamilton considered units to be vacant if the owner failed to make a mandatory declaration by the prescribed deadline or failed to provide information or to submit any evidence required by the City.

Who is exempt?

Exemptions apply if the property has had:

• The death of an owner, applied for the year of death and one more consecutive year
• Major renovations for which a building permit is issued, which make it unhabitable for more than 183 days in the calendar year
• Transfer of legal ownership
• A principal resident that is in care, institutionalized or hospitalized
• A court order which prohibits the property from being occupied

Peel Region [5]

Peel Region is considering implementing a vacant property tax as well, but as of June 8, 2023, this Program has been placed on hold. 

At Northview Law we are here to serve your needs, for more information please contact our office.

References

[1] Government of Canada, “Underused Housing Tax”, https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html, accessed November 9, 2023.

[2]City of Toronto, “Vacant Home Tax”, https://www.toronto.ca/services-payments/property-taxes-utilities/vacant-home-tax/, accessed November 9, 2023.

[3] City of Ottawa, “Vacant unit tax”, https://ottawa.ca/en/living-ottawa/taxes/property-taxes/vacant-unit-tax, accessed November 9, 2023.

[4]City of Hamilton, “ Vacant Unit Tax”, https://www.hamilton.ca/home-neighbourhood/property-taxes/vacant-unit-tax, accessed November 9, 2023

[5] Peel Region, “ Vacant Home Tax in Peel – on hold”, https://www.peelregion.ca/vacant-home-tax/, accessed November 9, 2023.