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Can You Avoid Toronto’s 3% Vacant Home Tax While Selling?

Over the past couple weeks, I have been getting the same 2 big questions from different clients, regarding the Vacant Home Tax and the Foreign Buyer Ban.


I think it would be a good idea to answer them in this video so you can all benefit from the answers.


Let’s dive in!

In this video, we talked about how difficult it is to sell a tenanted home.


The chance of getting it sold is roughly only 5%.


Nowadays, investors are often debating whether they should offload some of their investments because there are many uncertainties in the market.


So if their tenants are planning to leave, it is often a trigger point for landlords to put the property up for sale.


In most cases, these landlords are not desperate, they just want to try out the market and see if they can sell at a price they want.


The units are typically not priced to sell, probably slightly higher than market prices.


In today’s market, it is possible that these units would sit vacant on the market for a few months.


Are you going to run into the risk of paying a vacant home tax?


Currently, the City of Toronto is the only city in the GTA that has implemented a Vacant Home Tax.


If your property is in cities like Mississauga, Vaughan, Markham, Richmond Hill, then you do not need to worry about a Vacant Home Tax.


Let’s talk about the City of Toronto.


The Vacant Home Tax officially came into effect on January 1, 2022.


If you have an investment property in the City of Toronto and it was vacant for more than 6 months during the taxation year of 2022 or 2023, you had to pay a 1% vacant home tax.


Starting 2024, the vacant home tax was increased from 1% to 3%.


By the way, friendly reminder to declare your 2024 occupancy status to the City of Toronto, the deadline will be April 30, 2025.


If you are in our rental management program, we would take care of the declaration for you.


Most of you should have received the confirmation from the city already.


Here comes the big question.


You were trying to sell your vacant property, but it took more than 6 months to find a buyer, so do you still have to pay the 3% Vacant Home Tax?


Let’s say you started selling your vacant property in January and you found a buyer in July with a closing date of September.


Your property would have been vacant for 9 months in the taxation year.


But don’t worry, you should be exempted from the Vacant Home Tax as long as you can provide a land transfer deed showing that 100% ownership was transferred.


Adding a name or removing a name in the title does not count.


The vacancy and the sale need to occur in the same year because the Vacant Home Tax is evaluated per taxation year.


What if your property doesn’t get sold within the same year?


Say you started selling your property in May and it still doesn’t get sold at the end of the year.


So when you file your vacant home tax declaration, you would have to declare a 7-month vacancy.


“Trying to sell the property” is not an eligible exemption by book, although you might still be able to plead the case, but it may not be straightforward.


For example, the City may go onto MLS and see that your property has been listed for sale for months, but your listing price is way above the market price, they may not grant you the exemption.


It will be at the mercy of the City whether you need to pay the 3% Vacant Home Tax.


If you are one of those landlords who are trying out the market, make sure you keep the Vacant Home Tax in mind.


Now, let’s talk about the Foreign Buyer Ban.


The law came into effect on January 1, 2023 to prohibit non-canadians from purchasing properties in Canada.


It was initially set to last for 2 years, expiring on January 1, 2025.


I have foreign buyers asking me if they can buy properties now since we are in 2025.

 

The ban has actually been extended for another 2 years, which means foreign buyers will have to wait until 2027 before they can purchase a property here.


If you found this video educational, make sure you subscribe and hit the bell for more knowledge!



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