Overview: a look at Toronto’s Vacant Home Tax (VHT) and Canada’s Foreign Buyer Ban, plus their impact on home sales, prices, inventory and more.
Two of the biggest include Toronto’s Vacant Home Tax (VHT) and The Prohibition on the Purchase of Residential Property by Non-Canadians Act.
The goal of both policies is to increase housing supply, curb rising home prices and generate revenue.
However, the policies have their share of critics and may not be as effective as promised.
So let’s examine the VHT and Foreign Buyer Ban, their potential impact on the housing market, and how they affect home buyers, sellers, investors, and renters.
What is the Vacant Home Tax?
The Vacant Home Tax requires Toronto homeowners to pay an annual tax on vacant properties.
A property is considered vacant if a) if it’s not used as the owner’s primary residence or b) is unoccupied for 6 months or more during the previous calendar year.
All homeowners must declare the status of their property every year (even if they live there).
How is the Vacant Home Tax Calculated?
The Vacant Home Tax is equal to 1% of a property’s Current Value Assessment (CVA).
For example: the owner of a $1 million-dollar property would have to pay an annual tax of $10,000.
When is the Deadline for the Vacant Home Tax?
The deadline for declaration was February 2nd.
However, it’s been extended to the end of the month after 15% of homeowners failed to declare their property status on time.
No fines will be issued for those who missed the original deadline.
However, declarations made after the new February 28th deadline will result in a $250 fee, while false or misleading statements can carry fines up to $10,000.
How to Pay the Vacant Home Tax
The easiest way is to use the city’s online declaration portal.
You can also request a paper declaration form.
To download and submit the Property Status Declaration form, simply click here.
Exemptions to the VHT
The most common exemptions to the Vacant Home Tax include:
Transferring legal ownership to an unrelated buyer
Repairs and renovations that prevent the normal use of the property
Having a principal residence outside the GTA but using the vacant property for employment purposes at least 6 months per year
Goals of the Vacant Home Tax
The Vacant Home Tax has two goals.
The first is to increase the availability of housing by encouraging homeowners to either live in or rent out their properties.
The second goal is to raise between $55-66 million in tax revenue for the city.
Revenue from the tax can then be used to fund affordable housing projects.
Impact of the VHT on Homeowners
The good news is that most Torontonians will not be affected by the tax.
In the words of mayor John Tory:
“If you want to live in your house or condo, you will not pay this tax. If you own another house or condo and you lease it out to somebody or there’s a tenant in it, you will not pay this tax…”
So the tax only affects a small number of homeowners.
Impact of the VHT on Inventory
One benefit of the VHT is to add much-needed supply to the market.
According to The Star:
The city isn’t sure how many homes are sitting empty, but based on utility consumption, it estimates there could be between 9,000 and 27,000…
While thousands of units coming on the market won’t fix Toronto’s housing crisis, it would certainly alleviate it.
For example, 27,000 new rental units would be a huge boon for those who can’t afford to buy a home.
Impact On Home Buyers
By adding more supply to the housing market, the Vacant Home Tax may help bring down home prices.
However, the estimated 9,000 to 27,000 new units mentioned above won’t have a significant impact.
As The Star reports:
The kind of homes that would sit vacant in an expensive city like Toronto are a long way up the property ladder from desperately needed affordable housing…
Wealthy investors with multiple properties usually don’t buy small condos, so many of those units will remain out of reach for first-time buyers.
Impact On Home Sellers
The Vacant Home Tax will affect sellers more than buyers.
A total of 40 per cent of those polled at the end of last year said that they intend to sell their investment property [as a result of the tax].
Although more supply means less competition, sellers may increase the asking price if they have to pay the VHT.
Furthermore, 28% of homeowners plan on renting out their properties instead of selling, which is great news for renters but not buyers.
Finally, a whopping 30% of homeowners polled said the tax won’t affect them at all.
That means the overall impact of the VHT on home sales and prices may be modest at best.
What is the Foreign Buyer Ban?
Also known as The Prohibition on the Purchase of Residential Property by Non-Canadians Act, the ban prevents non-Canadians from purchasing residential property in Canada for 2 years.
The act defines residential property as “buildings of up to 3 dwelling units and parts of buildings, like semi-detached houses or condominium units.”
The law goes into effect on January 1, 2023 and will be repealed after 2 years.
Exemptions to the Foreign Buyer Ban
The act does not apply to the following individuals (provided they meet certain criteria):
- Permanent residents living in Canada
- Temporary residents studying in Canada
- Temporary residents working in Canada
- Accredited members of foreign missions in Canada
- Refugee claimants and individuals fleeing international crises
- People who acquire an interest in a residential property as a result of divorce, separation or death
Goals of The Foreign Buyer Ban
According to Immigration.ca:
Finance Minister Chrystia Freeland says the ban on foreign ownership of homes is needed to curb house prices in Canada and prevent them from rising so high as to push working-class and young Canadians out of the real estate market.
By barring foreign buyers, the act aims to make housing more affordable to Canadians who have been priced out of the market.
Impact of The Foreign Buyer Ban
As the CBC explains:
CBC News repeatedly asked the federal government whether it had conducted any modelling on the ban’s potential impact on house prices. In response, CMHC indicated the government had not carried out any such analysis.
Because there’s no previous data to analyze, it’s unclear how the ban may affect the housing market.
But critics point to New Zealand as an example of why the ban may not work.
Prior to New Zealand’s 2018 ban, 2.9 per cent of homebuyers were non-residents. Their number has since dropped to 0.4 per cent — yet house prices continued to soar, reined in only by this year’s interest rate hikes.
Like New Zealand, home prices in Canada may continue to climb despite the ban.
Foreign buyers also make up less than 4% of residential property owners in Canada, so the ban’s impact on home sales and prices would likely be minimal.
However, combined with the Vacant Home Tax and rising interest rates, it may help to free up inventory, cool competition and bring down prices.
Vacant Home Tax & Foreign Buyer Ban Conclusion
Both the Vacant Home Tax and Foreign Buyer Ban share similar goals: to increase supply, reduce competition and make homes more affordable for Canadians.
However, the former won’t affect most homeowners, while the latter applies to less than 4% of all buyers.
But together these two policies, along with rising interest rates and higher mortgages, may have some success in freeing up inventory and bringing down prices.
Want to know more about the Vacant Home Tax or Foreign Buyer Ban? Simply contact me below!
Real Estate Broker
Living Realty Inc., Brokerage
m: 416.903.7032 p: 416.975.9889
a: 7 Hayden Street Toronto, M4Y 2P2
w: www.winslai.com e: [email protected]
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