Everything You Need to Know About Empty Home Tax
Housing is one of the most reliable investments a person can make because, unlike other products, they can’t make new land. Real estate traditionally outperforms other types of investments.
However, buying or selling a property is not like purchasing shares in, say, a software or clothing company. People need somewhere to live, and cities like Toronto are in desperate need of additional housing. Canada’s largest city has over 10,000 homeless people, a population that is growing quickly.
Middle-class people increasingly can’t afford to live here. Even the city itself said they had trouble in hiring, recruitment, and retention because the city was so unaffordable. These dynamics pre-date the pandemic, even if it certainly accelerated things.
While there are many challenges a landlord can face, tenants need representation, too. That’s why the Toronto city council asked for information about an empty home tax back in 2019.
Let’s learn more about the vacant home tax and how it works.
Why It’s Necessary
It would be a shame for housing units to sit empty and unused while so many people are desperate for somewhere to live. Previous financial incentives were such that it may have been more profitable for owners to leave them empty and unused, waiting for their value to rise dramatically over the years.
An empty home tax tilts the balance somewhat, incentivizing property owners to make a home of their property rather than leverage it to the max as a financial commodity. If you want to profit from owning a building without taking on the tasks and legal obligations of looking after tenants, Property Management Toronto offers professional landlord services that take these concerns off your plate.
People want to live in a vibrant, bustling urban environment without shuttered units speckling the city.
How Much Does It Cost?
The empty home tax makes sense from a broad perspective, but let’s get into the nuts and bolts a bit. At its July 14-15 meetings, Toronto’s City Council approved the vacant home tax’s development and implementation.
The tax amounts to 1% of the home’s value during the year it was vacant. That means that if your property has no tenants for all of 2022, you’ll have to pay 1% of the property’s value in early 2023. Basically, a 1$-million property would face a $10,000 tax if it was determined vacant under the law.
Every property owner will have to self-declare their annual residential home(s)’ status, establishing its occupancy status and whether the tax will be required. Nothing else is asked of property owners living in their homes.
However, if nobody lives on a property, the owner must pay a 1% Current Value Assessment (CVA). Any unit unoccupied for more than six months of the previous calendar year is considered “vacant” so long as it’s not the owner’s principal residence. If you own one property and decide to spend more than half the year away, the vacant home tax does not apply to you!
There are some other exemptions.
The by-law still needs to be passed this year, but the city plans to detail the following list of exemptions to the vacant home tax:
- The registered owner dies
- Property undergoes redevelopment or major renovation
- Property owner is in care
- A legal rental restriction or prohibition prevents the unit from being occupied
- Transfer of legal ownership of property during the year
- Occupancy for full-time employment
- Court order
The idea isn’t to be punitive to property owners or restrict what they can do to the buildings they legally own. If there’s a health emergency, a legal snafu, or you want to overhaul your property, you’re fully entitled to do so without paying an additional tax.
To enforce its laws, the city will select properties for audits randomly or on a specific criteria basis. If your building gets selected, you’ll have to supply information and evidence to substantiate the claim regarding your occupancy.
The testing won’t be onerous, but these enforcement measures help ensure people take the new law seriously. There will be fees and penalties for those who don’t comply, the terms of which will be established in the by-law later in 2022.
The point is that keeping properties uninhabited just got more expensive, so there’s a greater financial incentive to look for a great tenant and turn that empty space into housing! Property Management Toronto is here to help you every step of the way.
Some property owners who have held on to their deeds for years, waiting for prices to peak, have a different calculation now. Suddenly, renting out the property may represent the best path for profit maximization, but not everybody has the time or skillset to be a landlord.
Property Management Toronto can alleviate this concern with our turnkey services. You don’t need to worry about this new tax, so long as someone lives on your property. That’s where we come in!
Investors may have landlord misconceptions prior to buying a rental property that distorts their early expectations about profit margins. Hiring a professional property manager who tracks new, relevant legal changes and handles a landlord’s daily tasks and responsibilities lets you focus on investing. We’ll attend to all your tenant’s needs so they enjoy living in their community and re-sign their lease year after year.
The leading property management in Toronto ensures your unit or units stay in great condition and keeps you looped into any changes to real estate laws without ever wasting your time. From our four-step tenant selection process, tenant relationship services, and 24/7 maintenance requests and fulfillment, you can sit back confident that the goings-on in your building function like a well-oiled machine as your asset increases in value.
If you’re curious about any other element of the new vacant tax or have any property management questions, don’t hesitate to call Property Management Toronto at 416-451-9499. We’ll give you clarity about new Ontario legal developments pertaining to real estate and answer any questions about our services.