40% of condo investors in Toronto plan to sell due to the new vacant home tax.
It’s all over the internet.
Sounds alarming, doesn’t it?
What’s my take on that?
#1 The Survey
Every year, the Toronto real estate board does a survey with condo investors to see how many of them are planning to sell their investment property.
In fall 2019, there was no pandemic and 34% of condo investors said they are planning to sell.
In fall 2020, in the middle of a pandemic and hearing about a potential vacant home tax, 40% of condo investors said they are planning to sell.
You see, when you look at the 40%, it sounds like such an alarming number and it makes good catchy headlines.
But really it’s just 6% more than 2019. Given all the things that happened in 2020, I think 6% more is very normal and after all it’s just a survey.
#2 The Facts
The Toronto City Council approved the plan to implement a new tax on vacant Toronto homes starting in 2022.
And that’s pretty much all we know at this point.
What’s the tax rate?
It will likely be 1% of the property’s assessed value in the tax year, but this is not confirmed yet.
And the most important question, how do you define “vacant”?
No one lives in the home for 1 month? 3 months? 6 months?
We won’t have the answer until later this year.
But we know this tax is modelled after a similar tax in Vancouver, so let’s take a look for reference.
#3 The Empty Home Tax in Vancouver
In Vancouver, every property owner must declare each year, whether their property is occupied or vacant.
For example, by February 2021, they must declare the status of their property in 2020.
If the property is a principal residence or it’s been rented for at least six months of the year, then it is NOT vacant.
If the property is vacant, then 1.25% of the property’s 2020 assessed taxable value will be charged to the owner as the Empty Home Tax.
You see, most people won’t be paying this tax unless you purposely leave your property vacant.
I think the definition of a vacant home in Toronto would likely be the same as in Vancouver.
If you rent your property out for at least six months in a year, you most likely won’t need to pay the vacant home tax.
Some people were concerned that the vacant home tax is going to drive many investors to sell their properties and flood the market with available units.
Well, how many investors would leave their investment property and not rent it out for at least six months?
Would you do that?
I certainly won’t.
Sure, there are always rich investors who don’t care about rental income and just leave their investment properties vacant.
So now they might want to sell, but to flood the market? I don’t think so.
And here’s the thing.
If they have that kind of cash to burn, they probably don’t care that much about an extra 1% tax either.
So I don’t think the vacant home tax would have a very noticeable impact on the market because most people won’t be affected by this new tax anyway.
I hope you have a better understanding of the vacant home tax now.