Item - 2024.EX17.4

The Chief Financial Officer and Treasurer recommends that:  

1.  City Council approve the following changes to the Vacant Home Tax program and timeline, effective for the 2024 Taxation Year unless specified otherwise, and amend City of Toronto Municipal Code Chapter 778, Taxation, Vacant Home Tax, accordingly:

a.  extend the declaration due date to the last business day of April of the year following the Taxation Year in respect of which the declaration is made;

b.  change the deadline for the issuance of the Notice of Tax to June 1. Should June 1 fall on a weekend, the bill will be issued the first business day following June 1;

c.  change the payment due dates to the 15th of September, October, and November, from the 15th of May, June, and July, or such other date as may be indicated on a notice of assessment;

d.  delegate authority to the Chief Financial Officer and Treasurer to alter the declaration due date, date of Notice of Tax issuance, payment due dates and Notice of Complaint deadline, if required; and subsequently report to Council, in consultation with the City Solicitor, as soon as practical with a bill to amend Chapter 778;

e.  add a new exemption for Secondary Residence for Medical Reasons;

f.  change the requirement for the exemption occupancy for full-time employment from “the Vacant Unit is required for occupation for employment purposes for an aggregate of at least six months in the Taxation Year, by its Owner who has a Principal Residence outside of the Greater Toronto Area” to:

“The Vacant Unit is required for residential purposes by the Owner or their spouse and the following conditions have been met:

(a) Owner or their spouse was employed full-time during the taxation year and the nature of the employment required their physical presence in Toronto;

(b) the employment term(s) was an aggregate of at least six months during the taxation year; and

(c) the unit occupant (owner or their spouse) has a Principal Residence outside of the Greater Toronto Area.”;

g.  change the definition of Self-Contained Unit from “a dwelling unit which includes a dedicated washroom and kitchen” to “a dwelling unit that is classified as a residential unit by the Municipal Property Assessment Corporation, which includes a dedicated washroom and kitchen even if in disrepair”;

h.  remove section 778-7.2. Demand for information subsection (A)(3);

i.  change section 778-7.2 Demand for information subsection (A)(4) to “Income tax notices of assessment of any Occupant and Owner”; and

j. change the definition of Appellate Authority from the City’s Controller to the City’s Deputy Treasurer. 

2.  City Council amend City of Toronto Municipal Code Chapter 441, Fees And Charges, Appendix C, Schedule 5, Revenue Services, effective January 1, 2025, to suspend the issuance of the user fee for failing to provide a Declaration of Occupancy Status by the declaration due date.

In 2021, City Council approved the Vacant Home Tax (VHT) as a policy tool to help address the housing crisis that exists in Toronto. The primary objective of the VHT is to improve housing availability by reducing the number of residential properties that would otherwise be left vacant. The VHT program creates a disincentive for property owners to leave residential properties vacant and encourages them to bring these homes into the active rental or ownership housing market. Where property owners choose to keep a property vacant, revenues collected from the program are invested in initiatives that increase or preserve housing supply, such as the City’s Multi-Unit Residential Acquisition (MURA) Program.

While the VHT program is still relatively new in Toronto, evidence from other jurisdictions has shown that it is an effective policy tool to increase housing supply. As seen in Vancouver, their equivalent policy tool to the VHT has directly resulted in an increase in housing stock in the rental market.

While the VHT program is an important policy tool to support housing supply in the City, the 2023 declaration process that culminated last April was incredibly challenging for residents who received a Vacant Home Tax charge for a property they continued to reside in, as well as Members of Council, their teams and City staff that fielded countless calls from distressed residents. During a report to Council in April 2024, staff acknowledged the challenging 2023 VHT declaration process and immediately identified actions to address those challenges. Staff committed to undertaking a full review of the program and reporting back with a completely redesigned VHT process effective for the 2024 taxation year.

Since then, Revenue Services, in collaboration with Strategic Public & Employee Communications, Technology Services, Customer Experience (311), Legal Services, Office of the Chief Information Security Officer (CISO) and Office of the Chief Financial Officer & Treasurer have completed a full review and redesign of the program, focusing on improvements to the following four key areas, all with a customer centred approach:

1.    Process and timelines,

2.    Ease of declaration,

3.    Communications strategy, and

4.    Technology and customer interface.

Together, these improvements aim to make the declaration process as simple and accessible as possible based on feedback from discussions and consultations with various target audiences.

The recommended changes outlined in this report will ensure that homeowners are able to declare their occupancy status in a format that works best for them, whether online, in-person or over the phone, over an extended period of time with access to a dedicated customer care team should additional support be needed. The revised program will ensure a smoother and more efficient experience for Torontonians who, through annual declarations, are a key part of helping the City address its current housing crisis. These changes will also ensure that no homeowner will receive any billing related to VHT, unless they are specifically determined as vacant in accordance with the VHT program by-law.

Investments in Housing

The VHT is a policy tool specifically designed to increase the supply of housing in the City by disincentivizing keeping homes vacant. When a home remains vacant, any VHT revenue collected is directed towards initiatives that increase or preserve housing supply.

Following the second year of implementation of the VHT program, it is estimated that the current vacancy rate in the City is approximately 1% - 1.2%. As the program has its desired impact of reducing the number of vacant homes, there will be a corresponding decrease in VHT revenues collected. The program currently generates approximately $55 million annually. These funds are not used to offset general budget pressures or balance the City’s budget but rather are reinvested specifically into housing initiatives. After offsetting program administration costs, funds have been used to support capital initiatives within the Housing Secretariat and Toronto Community Housing Corporation, with a further allocation towards the Multi-Unit Residential Acquisition (MURA) program that enables the purchase of at-risk private market rental housing to secure the homes as permanently affordable non-profit housing.

To date, it is estimated that the VHT program has collected total revenues of $107.2 million ($56.5 million for the 2022 taxation year and $50.6 million for the 2023 taxation year). Actual revenues generated by VHT program will not be finalized until all Notices of Complaint and audits are complete for these taxation years.

To further encourage a reduction in vacancies and support adequate housing supply, City Council has approved a rate increase to the VHT from 1% of a residential property’s current value assessment (CVA) to 3%, effective for the 2024 taxation year. As a result, the City anticipates a decrease in the current vacancy rate with preliminary estimates for annual revenues of approximately $105 million in 2025. A refined estimate will be considered as part of the 2025 Budget process based on market trends and response to the program. Staff anticipate this to be diminishing revenue, with an expected decline each year as more homes are actively occupied.

Program Administration

This report includes recommendations on a redesign of the VHT program that includes a series of program enhancement with an overall financial impact estimated at approximately $5.8 million annually associated with administering the program. This includes areas of staffing for a dedicated customer care team available through 311, totalling an estimated $1.1 million annually. The enhanced communication strategy including a more robust print and online advertising campaign, additional mail notices, and print and postage costs for tax bills inserts is expected to have an annual cost of approximately $1.6 million. Table 1 below provides details on proposed additional impacts for the 2024 VHT Taxation Year.

Table 1: Comparison of 2023 and 2024 VHT Program Administration Budgets

Program administration costs will continue to be fully offset through VHT revenue collected with no impact on the City’s property tax base.

Waiving the Declaration Late Fee

For the 2023 taxation year, City Council waived the user fee for failing to declare occupancy status by the due date (Item CC17.1). This fee had previously been implemented as of January 1, 2024, at an amount of $21.24 for each property owner with the intent to apply funds received to administrative costs. Staff recommend that the user fee continue to be waived while the success of program redesign initiatives are evaluated. Staff will reassess the success of the program through evaluation of the ease of declaration and the declaration rate to make appropriate recommendations on the further extension of this user fee waiver or the reinstatement of the inflation-adjusted user fee for subsequent taxation years.

Given the recommended program design changes in this report, specifically including the extended deadline to April 30, increased ease of declaration, and enhanced communication strategy, staff expect the number of property owners to submit a late declaration to be significantly minimized in future years.