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.
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 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.