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City of Toronto’s Vacant Home Tax: Implications on Real Estate Transactions and How Realtors Can Protect their Purchaser Clients

By Kormans LLP

Happy New Year! Once again, the time where many of us jot down lists of arduous resolutions that will be followed in the year ahead, and most of us uncertain about how these resolutions will be executed. Talking about uncertainties surrounding New Year’s resolutions and their execution plans, reminds me of different real estate laws that came into effect in 2023.

One of them being the Vacant Home Tax that will be imposed by the City of Toronto.

The Vacant Home Tax is deemed to come into effect on January 1, 2022, and therefore, every homeowner in the City of Toronto is required to submit a declaration with regards to the status of their property in each taxation year, including year 2022.  

For more details about the Vacant Home Tax and other new laws that came into effect this year, please see our blog titled “Three New Laws in 2023”. We also invite you to watch Episode #72 of David & David on Real Estate Podcast.

After digesting the fact that there is one more tax to take care of, it is time to analyze another aspect that you should consider about the Vacant Home Tax – its impact on residential real estate transactions.

Non-payment of the Tax can result in arrears being added to the property’s Tax Roll and can be collected in the same manner as Property Taxes, and therefore, can even form a lien on the property. It is of utmost importance that Buyers ensure that correct status declarations have been filed by the Vendor for the property they are purchasing and there are no arrears if the Tax was ever applicable in the past.

For example:

  • A purchases a property from B without confirming whether B has completed and filed his status declaration.
  • Turns out, the property was deemed to be a Vacant Unit because B never filed his declaration, and never paid the Tax due.
  • The arrears get added to the Tax Roll and now A is liable for the amount due.
  • If the property in question has an assessed value of $800,000.00, the tax will be 1% of $800,000.00, i.e., $8,000.00. Meaning, A now owes $8,000.00 to the City of Toronto!
  • To add to its significance, title insurance providers will also be looking for evidence of completed status declarations before issuing policies. They will require proof that correct declarations have been filed by the Vendor and there are no arrears that can form a lien in future.
  • There is still some uncertainty on how title insurers will ultimately decide to address this on every transaction.

Now we know how important the new Vacant Home Tax is when it comes to residential real estate transactions… But… how to be sure that you are protected against liabilities that can arise following closing?

The best way is to address the Vacant Home Tax right in the beginning when entering into a transaction to purchase a residential real estate property – by adding a clause to the Agreement of Purchase and Sale (APS). There are different clauses that can be added with different levels of certainty associated with them to confirm if the Seller has correctly met their obligations under the new law. Clauses can include warranties, requirement of evidence, indemnity, etc. We invite all Realtors reading this to contact our office at your convenience to discuss how you can protect your clients against liabilities that can arise due to Vacant Home Tax.

It will also be vital for the real estate lawyer acting for a Buyer to perform their due diligence with respect to the Vacant Home Tax. We, at Kormans LLP, are all equipped and ready to perform our due diligence to make sure that our clients’ interests are protected, and our clients do not incur unnecessary liabilities because of the new Tax. It is vital that you have trustworthy and reliable lawyers by your side in your real estate transactions.

Please reach out to us for any specific legal advice. The lawyers at Kormans LLP are happy to assist you with any questions that you may have on this blog, or other legal inquiries that you may have relating to real estate, corporate/commercial or wills/estates law!

Yashkaran Singh

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Yashkaran Singh is an Associate Lawyer at Kormans LLP. You can reach Yashkaran here:

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