TAXES ON VACANT HOMES: A DIGEST FOR EXECUTORS

Nov 27, 2023

Taxed for having your home vacant…the concept, at first blush, evokes the lyrics of a George Harrison tune:

“If you try to sit, I’ll tax your seat…

If you talk a walk, I’ll tax your feet…

‘Cause I’m the taxman, yeah, I’m the taxman.”

Nonetheless, tax on vacant homes is now in effect at the municipal level (Toronto’s Vacant Home Tax) and at the federal level (the Underused Housing Tax). The stated purpose of the taxes is to increase the supply of residential housing by creating an incentive for homeowners to keep their homes occupied.

In this blog post, I digest these recent rules (which took effect starting in 2022) to give the executor (a.k.a. estate trustee, deceased’s personal representative) an overview of the potential filing and tax obligations, when the estate includes residential property.

Executors should note that there are some other municipalities in Canada (e.g., Ottawa and Vancouver) that have their own municipal vacant home taxes (outside the scope of this digest).

Residential Properties in Toronto (municipal Vacant Home Tax)

Every Toronto homeowner has a reporting obligation under the new tax rules. If the homeowner has died, the executor of the estate will make the ‘declaration’ to the City, either online or by mail in February, indicating the status of the property (vacant or not) in the previous year.

A property’s status is ‘vacant’ where it:

  • Was not occupied by tenants for at least six months in the previous calendar year, and
  • Was not the principal residence of the owner, or another occupant, for at least six months in previous calendar year.

Conversely, the property is ‘not vacant’ if either of those conditions are satisfied. And if the residential property is a duplex or triplex, it’s only necessary for a single self-contained unit to meet either of those two conditions for the property’s status to be ‘not vacant’.

There’s never any tax when the status is ‘not vacant’. Even when the status is declared ‘vacant’, there’s no tax if an exemption applies. Executors should take note of the exemption from tax for the year of the owner’s death and the following calendar year (if the vacancy is due to the death of the owner). There are several other exemptions, including when occupation is prevented by renovations, or when the principal resident is in hospital or long-term care (subject to certain conditions).

If the declaration isn’t made, the City can deem the property vacant – this eliminates the ability to claim exemptions that would otherwise be available.

To summarize, vacant home tax will be owed when a residential property is declared vacant and no exemptions are applicable (or if the property is deemed vacant). The amount of tax is 1% of the assessed value listed on the property tax bill. For a property assessed at $1,000,000 for 2023, the vacant home tax would be $10,000, payable in three instalments in 2024.

Residential Properties in Canada (federal Underused Housing Tax):

Executors also need to consider any obligations they might have under the federal Underused Housing Tax, when an estate contains residential property located anywhere in Canada.

The good news is that in most cases, executors won’t have any federal filing requirement (which also means no tax). This is because individual Canadian citizens and permanent residents who own residential property are classified as ‘excluded owners’ – i.e., excluded from having to file a return. The CRA takes the view that someone who is an ‘excluded owner’ before death remains an excluded owner after death for as long as their name remains registered on title. So if title remains in the Canadian deceased’s name, the executor won’t need to file. And if title is transferred into name of the executor, there would still be no filing requirement, as long as the executor is him or herself an ‘excluded owner’ – i.e., a Canadian citizen or permanent resident.

Yet there are certain situations where a federal filing obligation could arise:

  • Where a non-Canadian died owning residential property in Canada, and title remains registered in the name of the deceased, the executor will need to file (because the registered owner is not Canadian and therefore is not an ‘excluded owner’).
  • An executor (if a Canadian citizen or permanent resident) is an ‘excluded owner’, but all other varieties of trustees are not ‘excluded owners’ and will need to file a return. So the trustee of a testamentary trust, who in that capacity is the registered owner of a residential property, will need to file (even if he or she is a Canadian citizen).

If there’s no filing requirement, there’s no tax. And when filing a return is required, there are exemptions, such as where the property is occupied or a principal residence for at least six months of the year, and an exemption from tax for the year of the owner’s death and the following year.

If no exemptions apply, taxes for the year are calculated as 1% of the greater of the assessed value and the most recent sale price. There’s an election to use fair market value, which may be useful where only a small part of a large parcel of land is used for residential purposes.

Summary

George Harrison undoubtedly would be miffed if he knew about vacant home taxes. But executors really shouldn’t be overly concerned, for the reasons summarized below:

  • If the deceased owned residential property in Toronto, the executor will have an annual obligation to declare the property’s status under Toronto’s Vacant Home Tax. But there won’t be any tax unless the property is considered vacant and no exemptions apply (remember, tax is exempt for the year of the owner’s death and the following year if the vacancy is due to the death of the owner).
  • On the federal level (Underused Housing Tax), executors usually won’t have a filing obligation (which automatically means no tax), except if the deceased homeowner was a non-Canadian and the home remains registered in the deceased’s name. When filing is required, there’s no tax if the property meets the occupancy criteria. Tax is also exempt in the year of the owner’s death and the following year.

 

Greg Miller

 

Greg is a native of Toronto. With a keen interest in litigation, he is delighted to be articling at Casey & Moss LLP. He graduated from U of T’s commerce program, and Western’s law school, with distinction. He has experience in commercial property management, and a personal interest in rare books and nutrition (with an admitted weakness for butter tarts).

 

Nothing contained in this post constitutes legal advice or establishes a solicitor-client relationship. If you have any questions regarding your legal rights or legal obligations, you should consult a lawyer. 

LAURA CARDIFF AND CARA ZACKS PRESENT ON THE MINIMAL EVIDENTIARY THRESHOLD IN WILL CHALLENGES

Nov 21, 2023

On October 23rd, 2023, Casey & Moss Partners Laura Cardiff and Cara Zacks were speakers on a panel hosted by the Ontario Bar Association on the subject of meeting the minimal evidentiary threshold in will challenges.

When someone challenges the validity of a will, before the will challenge can proceed before the court, the challenger must prove to the court that there is at least a minimal amount of evidence to support the claims being raised. If the will challenger cannot point to any evidence that, if corroborated, would prove that the deceased executed their will while lacking capacity, under duress, or under undue influence, then the will challenge won’t be allowed to move forward.

The purpose of requiring will challengers to meet this minimal evidentiary threshold is to protect an estate from having to spend time and estate money defending will challenges that don’t have any merit at all.

Laura and Cara spoke to the audience, consisting primarily of other estate litigators, about recent court decisions on the topic. They also provided a series of practical tips for litigators on what to include, and what to leave out of affidavits to make sure clients meet the threshold.

PROCEDURAL STEPS ON COMMENCING AN APPLICATION WITH THE TORONTO ESTATES LIST

Nov 6, 2023

The Superior Court of Justice is one of the busiest courts in the world, so commencing a court application can be intimidating and confusing to people who are not familiar with the procedures of the court. The Toronto Estates List is a branch of the Superior Court of Justice which hears matters such as will challenges, passing of accounts, and guardianship applications (just to name a few). Below you will find the simplified steps of commencing a court application with the Toronto Estates List:

 

  1. DRAFT YOUR MATERIALS

Your application materials will consist of a Notice of Application along with an Affidavit and together these two documents will form your application record. The Notice of Application will set out the grounds of the application and the relief that you are seeking. The applicant of the proceeding will swear their own Affidavit which details the facts of the case. A lawyer will usually draft these materials for you, but if you are self-represented it is your responsibility to draft your materials as you will need to serve them on the opposing party. Your application record will also be relied on by a Judge when your matter goes to court.

 

  1. ISSUE YOUR NOTICE OF APPLICATION

Now that your materials are finished – you can have your Notice of Application issued with the court. Your Notice of Application can be issued electronically via the Justice Services Online website which can be found here. If your materials are successfully accepted by the court, you will receive an email confirmation enclosing the issued copy of the Application which includes the court stamp and court file number.

 

  1. SERVE AND FILE YOUR MATERIALS

Now it is time to serve your materials on the Respondent(s). A Notice of Application is an originating process, meaning that you are required to serve the Respondents by personal service as stated in Rule 16.01 (1) of the Rules of Civil Procedure. After serving all the Respondents, you will need to have your Affidavit of Service drafted, sworn, and commissioned. Keep in mind, all materials that are served must be filed in accordance with the deadlines set out in the Rules of Civil Procedure.

 

  1. REQUEST YOUR FIRST COURT APPEARANCE

You may now request a hearing date with the court! In Toronto, you will usually have to attend a scheduling appointment prior to a hearing. This court appearance will generally only deal with procedural issues such as scheduling and timetabling. To request a scheduling appointment, you should email the trial coordinator and submit your request form which will include several dates that the court can set your scheduling appointment for. The trial coordinator will then confirm the date of your first court appearance, and you are all set to go!

 

Please keep in mind that the court rules are subject to change at any time. It is best practice to review the Practice Directions before going to court. You may access Toronto’s Practice Directions by clicking here.

 

Stacie Chrysanthopoulos

 

Nothing contained in this post constitutes legal advice or establishes a solicitor-client relationship. If you have any questions regarding your legal rights or legal obligations, you should consult a lawyer. 

CASEY & MOSS WELCOMES GREG MILLER

Oct 19, 2023

Earlier this month, Greg Miller joined the Firm as an articling student. Greg is a graduate of Western Law, with distinction. He is an exceptional researcher, has a keen interest in litigation, and is an overall pleasure to have on our team. Welcome, Greg!

Greg can be reached at
Email: gmiller@caseyandmoss.com
Phone: 647.368.6556

TMI? WHAT YOUR LAWYER NEEDS TO KNOW TO COMPLETE A PROBATE APPLICATION

Oct 5, 2023

Sometimes we might feel that a single detail of our loved ones’ lives is of no importance when it comes to managing their estate, but every detail has its place.

Whether they died with or without a will, here’s a list of important information not to ignore:

1. Names: Include the full legal name of the deceased as it appears on their passport or driver’s license.

You should also provide any additional names that might be on their will, if there is one, or a death certificate if that information is different from their legal names.

For Example. Johnny Lee Williams is James Allan Williams, or Mikey is Michael.

Nicknames are great and hold sentimental value and endearment towards our loved ones, so keep that information close to your heart as it won’t be used in the application unless it’s listed in the will, codicil, or official documents.

This also applies to the legal names of the beneficiaries.

2. Marital Status: Previous Marriages, Divorces, Separations, and Common-Law Partners

Give us all the juicy details. Your lawyer will need to know their current marital status and if there are any additional statuses from the past.

For Example. Michelle divorced Mike in 2008 and is currently in a common-law relationship with Justin.

This allows us to provide the most accurate information on the application and lets us know if any additional documents need to be prepared and included in the application.

3. Children: If the deceased died with a will, the will would likely include the names of their children if they were listed as beneficiaries under the will, but in some instances, the will might say “To all my children”.

In the case where no children are specifically named in a will or there is no will, you should provide the following information: names of all the children, date of birth, address, and emails or phone numbers. If the child is a minor, then we would need the contact information for that child’s parent or guardian.

4. Beneficiary’s Relationship to the Deceased: Beneficiaries of an estate can include the deceased spouse, cousin, child, uncle, brother, sister, friend, or even their pastor. Along with knowing how the beneficiary is related to the deceased, we also need to know if any of the beneficiaries have passed away.

5. Joint Accounts: Not only does your lawyer need to know if the deceased owned any bank accounts, but also the institution where they’re held and the value of those accounts as of the date of death. Your lawyer also needs to know if any of those accounts are held jointly and the type of joint account.

Some accounts will fall into the value of the estate and affect the amount of estate administration tax payable. Others will fall outside of the estate and have no impact on the estate tax payable.

Even though a detail may seem minor or insignificant, it may still be an integral part of the estate. The more pieces we have, the easier it is to complete the puzzle.

 

Olesya Johnson

 

Nothing contained in this post constitutes legal advice or establishes a solicitor-client relationship. If you have any questions regarding your legal rights or legal obligations, you should consult a lawyer.