Item - 2023.EX8.7

The Executive Committee recommends that:  

1. City Council approve the following changes to the Vacant Home Tax, effective for the vacancies occurring in the 2023 Taxation Year unless specified otherwise, and amend City of Toronto Municipal Code Chapter 778, Taxation, Vacant Home Tax, accordingly:

a. change the payment due dates to the 15th of May, June and July, from the 1st of each of those months;

b. change the definition of current value assessment (CVA) to reference the current value assessment of the Residential Unit, as shown on the most recently returned assessment roll for the Taxation Year, rather than as of the Payment Date;

c. by clarifying that six months means 183 days for the purposes of determining vacancy, so as to avoid confusion regarding longer and shorter months;

d. by expanding the definition of Tenant to include a business tenant, to account for situations where a property is assessed in the Residential Tax class, but is occupied by a tenant and operating as a business;

e. by adding a new exemption for newly built or constructed housing inventory that is vacant, which exemption applies for up to two (2) consecutive taxation years;

f. reduce the notice of complaint period to the last business day in the year of the Payment Date from the 10th business day of April of the following year;

g. by extending the declaration deadline to the last business day of February of the year following the Taxation Year in respect of which the Declaration is made;

h. change the requirement for the exemption for repairs and renovations from obtaining an opinion from the Chief Building Official and Executive Director, Toronto Building to a requirement that repairs or renovations are being actively carried out without unnecessary delay; and

i. increase the tax rate for vacant properties from one (1) percent to three (3) percent effective for vacancies occurring in the 2024 Taxation Year.

2. City Council amend City of Toronto Municipal Code Chapter 441, Fees And Charges, Appendix C, Schedule 5, Revenue Services, effective January 1, 2024 to include a new fee for failing to provide a declaration of occupancy status by the declaration due date; the fee is to be set at $21.24 per taxation year, effective for the 2023 Taxation Year, and approved for annual automatic inflationary adjustment.

City Council, at its meeting of December 15 – 17, 2021, considered item EX28.2 – Final Tax Design and Steps to Implement a Vacant Home Tax in Toronto and approved the implementation of a Vacant Home Tax (VHT), with direction to report back in the fourth quarter of 2023 with findings from the first year of tax collections as part of an annual reporting requirement. This report includes an update on the implementation of the VHT, learnings from other jurisdictions that have implemented a similar tax, and recommendations for required changes to the VHT program.

This report also details the communication plan to promote awareness of the VHT from its approval in July 2021 to its implementation throughout 2022 and building towards 2023. In addition, it addresses the online declaration portal that is accessible using the property assessment roll number and unique customer number on the owner’s tax bill or mailed VHT notice. The declaration portal for the 2023 Taxation Year is expected to open at the end of October/early November.

As this was the first year of the Vacant Home Tax declaration period, there was compelling interest to provide property owners with a grace period to provide their declarations and help moderate the financial impact on property owners who are required to pay the tax. This resulted in City Council extending the filing deadline by four weeks and amending the payment schedule from a single instalment to three instalments.

The declaration period was extended to February 28, 2023 and when the portal was closed, 2,336 property owners declared their residential units vacant, and 44,902 properties failed to provide a declaration and were deemed vacant at the time of billing. This represented approximately $283.7M of possible revenue. As of August 1, 2023, the number of properties deemed vacant has been reduced to 17,437, as declarations were received through the Notice of Complaint process. To date, the City has collected $54M in VHT, which is consistent with the estimated and budgeted revenues for 2023.

By the end of February 2022, the City received approximately 95% compliance on 818,937 notices mailed, including 774,662 declarations and 2,336 declared vacant. City Council also amended the by-law to extend the deadline for the 2022 taxation year to February 28, 2023. Lessons learned from the first declaration period include various administrative improvements, which will be implemented for the 2023 declaration period. Staff are also recommending a new fee for failing to provide a declaration of occupancy status by declaration due effective January 1, 2024.

As of August 1, 2023, 2,161 accounts are declared vacant with 17,437 deemed vacant. Both numbers are lower when compared to February 2022 and are expected to decrease as the number of declarations increases. Property owners are also able file a Notice of Complaint until April 15, 2024, along with a three-year period for audit activities. As such, actual revenues generated by VHT will not be finalized until all Notice of Complaints and audits for the taxation year is complete. As of August 1, 2023, the City has processed 24,641 of a total of 28,033 Notice of Complaints received, with audit activities for the 2022 taxation year to begin once onboarding of new staff is completed.

The report also reviewed Vancouver’s Empty Homes Tax, which was implemented in 2017. Toronto’s VHT program was designed using similar elements and used lessons learned from Vancouver’s experience, including the adoption of a self-declaration model, many of the same exemptions, and the administrative processes for filing a declaration, complaints, appeals and audit. The City of Ottawa also implemented a Vacant Unit Tax in 2022 and designed a program similar to Vancouver’s model. As this is their first taxation year, data on Ottawa’s Vacant Unit Tax is not publicly available at this time. One notable difference is in declaration requirements; property owners in Ottawa are required to submit a declaration for each unit within properties in the residential tax class with two to six units.

The issue of multi-unit residential buildings was also deliberated at Executive Committee’s consideration of EX7.1: Updated Long-Term Financial Plan on August 24, 2023, which was not included in Toronto’s plan at implementation due to the complexities to bill and assess the appropriate value of each individual unit within a multi-unit residential property. Based on analysis, a change to include residential properties with two to six units in the VHT program would require the City to process and assess an additional 41,130 declarations without the benefit of an assessed unit value within the overall property. Staff are not recommending any changes in the VHT program to include residential properties with two to six units at this time.

Following Council’s request for analysis as part of the Updated Long-Term Financial Plan, this report also recommends increasing the tax rate from 1% to 3% of the Current Value Assessment (CVA) effective for the 2024 Taxation Year, in support of increasing housing supply.