Toronto Vacant Home Tax: Who Must Declare and Pay in Ontario

If you own a house or condo in Toronto that is empty, partly used or rented, you may have heard about the vacant home tax. It is a City of Toronto program aimed at encouraging homes to be lived in rather than left empty.

This article explains in plain terms how owners should approach it. The deadline, the rate and the list of exemptions are set by the City and can change, so this article does not state them. Confirm current details with the City and with a lawyer or accountant if your case is not simple.

What the tax is and who it affects

The vacant home tax is a City of Toronto program, and how it applies to your property depends on the City's current rules and your situation, so it is worth confirming with the City and a lawyer or accountant. Federal income tax rules, which are covered below, work differently. Who is affected depends on the City's rules and on how each property was used, so it is worth confirming with a lawyer.

Whether a particular property counts as vacant depends on how it was used during the year and on the City's definitions. Occupancy by an owner or by a tenant, and the reasons for any gaps, are the kinds of facts that matter.

Declaring your property's status

Whether you need to make a declaration, and by when, depends on the City's current rules and on your notice. The declaration is usually made through the City's process, and the deadline is set by the City. Missing it can lead to consequences that are set out in the City's rules, so look for the date on your notice.

• Check your City of Toronto notice for the declaration deadline.
• Gather the details of each property that you may need when you respond.
• Make a list of every property you own so none is overlooked.
• Keep a copy of your declaration and any confirmation.

Exemptions and how to support them

Whether an exemption fits your situation depends on the City's rules and your facts, so it is worth confirming with a lawyer. The exact list and definitions are the City's, so check them before relying on any of them.

If you claim an exemption, be ready to back it up. Documents like leases, contractor invoices, building permits, utility records or medical letters, as relevant, are the sort of evidence an owner may need to keep.

If you rent out the property

How the City treats a rented home depends on its rules and the facts, so keep records of occupancy, such as tenancy dates, and confirm with the City or a lawyer.

Rental income also has income tax consequences. You must file a statement of income and expenses on Form T776, with gross rents on line 8299 and the net amount on line 12600 of your return. Co-owners each report their share according to ownership share. Current expenses are generally deductible in the year incurred, while capital expenses are deducted over time through CCA. If you move out of your home and rent it, you are treated as having sold it at fair market value and bought it back at the same amount, unless you make a subsection 45(2) election.

• Rental buildings are generally Class 1 (4%) for CCA, and land is not depreciable property.
• You cannot use CCA to create or increase a rental loss.
• If you make a subsection 45(2) election, you can designate the home as your principal residence for up to four years, but you cannot claim CCA on the property while the election applies.
• The election is made by attaching a signed letter to your income tax and benefit return for the year the change of use happens.

If you used only part of the home to earn income, you split the selling price and adjusted cost base between the two uses on a reasonable basis, such as square metres or number of rooms. The exception is small, ancillary rental use: the CRA generally keeps full principal residence treatment where the income-producing use is ancillary to the home's main use as a residence, there is no structural change, and no CCA is claimed.

When you sell your principal residence, you report the sale and the designation on Schedule 3 and complete Form T2091(IND). If the property was solely your principal residence for every year you owned it, you usually pay no tax on the gain. If it was not, only part of the gain is exempt, calculated as the gain × (designated years + 1) ÷ years owned. How this applies to a home that was empty or rented for part of the time depends on your situation, so it is worth confirming with an accountant.

If you sell a home you have owned for less than 365 consecutive days, the residential property flipping rule may treat the profit as business income, and the principal residence exemption is not available. The rule does not apply if the sale is due to, or made in anticipation of, certain life events such as a death, a serious illness or involuntary termination of employment. It also does not apply if the sale is due to the breakdown of your marriage or common-law partnership and you have lived separate and apart for at least 90 days before the sale.

What to do next

• Find your City of Toronto notice and note the deadline.
• List each property you own in Toronto and how it was used during the year.
• Collect leases, receipts and other proof of occupancy or of an exempt situation.
• Make your declaration on time and keep a copy.
• Ask a lawyer or accountant if you disagree with a charge or your situation is unusual.

Frequently asked questions