How to dispute your tax assessment under Toronto's 2024 Vacant Home Tax

Introduction

Toronto's vacant home tax declaration deadline is fast approaching

David J Rotfleisch, CPA, JD is the founding tax lawyer of Taxpage.com and Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law corporate law firm.

The City of Toronto now marks its third year of imposing the Vacant Home Tax ("VHT") on property owners in Toronto. After its controversial rollout in 2022, Toronto was plagued with a series of cascading blunders with its enforcement of the tax, resulting in over 169,000 complaints filed with the City of Toronto and the mass reversal of over 100,000 tax assessments concerning the 2023 tax year.

Toronto has taken concrete steps to revamp the VHT regime for the 2024 tax year, including by expanding ways to file annual declarations for properties and extending the deadline for filing to April 30, 2025. It remains to be seen however, whether these amendments to the regime will succeed in curing these long-standing defects with how the VHT is applied and enforced.

If you are a property owner in Toronto, then you should ensure you are aware and informed of your obligations and rights with respect to the VHT regime. In particular, you should be aware of how best to dispute your VHT assessment if you believe it was incorrect.

Understanding how the Toronto Vacant Home Tax works

In brief, the City of Toronto's VHT is imposed as a bylaw under Chapter 778 of the Toronto Municipal Code. Beginning with the 2024 tax year, the VHT is equal to 3% (formerly 1%) of the Current Value Assessment (i.e., the municipal property assessment prepared by MPAC to calculate property taxes for a property) for a property in a particular year. The VHT is levied on a property in a particular year if the City of Toronto determines the property to be either: (1) a "Deemed Vacant Unit"; or (2) a "Vacant Unit."

First, a property may be a "Deemed Vacant Unit" if the owner fails to file the required VHT declaration for that particular year by the declaration due date. (For 2024 VHT declarations, the deadline to file is April 30, 2025.) A property may also be a "Deemed Vacant Unit" where the owner of the property fails to provide information or evidence demanded by the City of Toronto during an audit or review of the property's occupancy.

Second, a property may be a "Vacant Unit" if the City of Toronto determines that the property was not the "Principal Residence" of the registered legal owner of the property or another occupant for more than six months during the year, or if it was not occupied by one or more tenants in aggregate for at least six months during that year. The term "Principal Residence" is further defined as a property in which a person is "ordinarily resident." (Crucially, Chapter 778 states that an individual may only have a single Principal Residence—and that a single property can form the Principal Residence of more than one person.)

These definitions raise a number of unsettling legal issues because the bylaw fails to qualify the meaning of the term "ordinarily resident." The concept of "ordinary residence" is well-known in many legal domains, including tax law, and refers to the place where [the taxpayer], in the settled routine of [his or her] life, regularly, normally or customarily lives." [Thomson v. Minister of National Revenue, 1946 CanLII 1 (SCC)].

The test is often expansive and requires a holistic review of how a property has been used, rather than simply counting the number of days that an owner used and slept in the property. However, these interpretations are not binding for purposes of applying the bylaw.

The bylaw also contradicts the well-established principle in other legal domains that a person may have more than one "Principal Residence" by artificially restricting an owner to one in a particular year.

However, the purpose of the bylaw is to address housing supply issues in the city of Toronto by encouraging property owners to either rent or sell unused or minimally used housing units. This restriction is, therefore, not clearly meant to modify the test for determining whether a property is a "Principal Residence" and instead exists to prevent taxpayers from defeating the purpose of the bylaw by having the same person who ordinarily inhabits several properties at once qualify each property for the test.

In any case, an owner may be exempt from the VHT on a vacant property in a number of circumstances, including:

• where the owner has passed away in the current or previous year;
• the resident of the property has been hospitalized or placed in long-term care for an aggregate of six months or more during the year;
• where legal ownership of the property has been transferred to an arm's length transferee in the year. (Note that, where an arm's length transfer has occurred, the City of Toronto has published that it will only require that the current owner file a declaration and claim the exemption for the property.)

If you are claiming an exemption with your VHT declaration for 2024, you should be sure to include any relevant supporting documentation to support that exemption. (The City of Toronto has published a useful list of documents it will generally accept as proof for an exemption online.)

The process for disputing a VHT assessment

If you have received a VHT assessment, then there is a two-stage process to disputing it set out in the bylaw: (1) the complaint stage; and (2) the appeal stage.

First, an owner of a property is entitled to object to a VHT assessment by serving a notice of complaint on the City of Toronto's Chief Financial Officer within 90 days of the assessment being issued. A complaint may be based on any error in imposing the tax, either resulting from errors or omissions by the owner completing a declaration or by the City of Toronto in assessing and calculating the tax.

A complaint is required to also include the following information:

• The identity of the property in respect of which the VHT assessment has been made;
• The full name and telephone number or email address of the complainant;
• Confirmation as to whether the complainant is the owner or an agent of the owner (and if the complainant is an agent, information on the nature of the terms of agency and authority);
• The grounds on which the complaint is based;
• A statement as to why the property should not be subject to the VHT based on the grounds of complaint; and
• Any supplementary information and evidence to substantiate the grounds for the complaint

Second, if a complainant disagrees with the outcome of a complaint, then the complainant who filed that complaint may file an appeal to the Appellate Authority of the City of Toronto to have the VHT assessment vacated or varied. An appeal may only be filed within 90 days from the date on which the Chief Financial Officer's decision was mailed.

However, there are two crucial limitations to an appeal:

1. The scope of an appeal is constrained to those issues raised in the originating notice of complaint, and so fresh issues cannot be raised on appeal.
2. An appeal may only be launched if the complaint included the above-noted prescribed information.

The complaint stage is therefore crucial to any potential appeal. All issues should be clearly pled at the complaint stage, and supporting evidence provided, in the event that an appeal is necessary. Failure to do so may diminish your appeal rights or nullify them altogether.

As well, only the original complainant will have standing to file an appeal to the Appellate Authority. If the property is sold after the complaint is filed but before an appeal is required, then the new property owner may not be able to file the appeal.

Once an appeal has been filed, the Appellate Authority must hold a hearing orally or in writing to consider the appeal, and must provide an opportunity for the appellate and the Director of the Revenue Services Division to make submissions. A decision must be made within 30 days of a hearing to vacate, vary, or reaffirm a VHT assessment.

The bylaw states that any decision by the Appellate Authority will be treated as final. However, it is a foundational principle of Canadian law that administrative decision-makers are not absolutely immune from review. Because there is no statutory right for further review, any decision by the City of Toronto's Appellate Authority can be subject to an application for judicial review with the Ontario Divisional Court.

The success or failure of any application for judicial review, however, will depend on the evidence presented during the complaint and appeal stage with the City of Toronto, and the reasons delivered by the City of Toronto's decision-makers at both levels.

Pro Tax Tip

If you are purchasing a home in Toronto, be sure to complete your due diligence concerning VHT declarations for your new home

Once a VHT assessment has been issued concerning a property that is a Deemed Vacant Property or a Vacant Property, then subject to being varied or vacated, the assessment is considered valid and enforceable. That amount is payable within the time limit designated in a VHT assessment, and accrues staggering interest of 15% per annum on the unpaid balance thereafter.

The City of Toronto maintains the right to audit any declaration filed for a property to determine if the property was, in fact, occupied or vacant. The City of Toronto's Chief Financial Officer further maintains the right to assess or reassess an owner for the VHT within three years from the day that the tax became payable.

However, the Chief Financial Officer may assess or reassess an owner for the VHT at any time if the owner made any misrepresentation attributable to neglect, carelessness or wilful default, by committing any fraud in supplying information for purposes of the bylaw, or by omitting to disclose information as required. As a result, a VHT assessment could still be issued long after a particular property has changed hands.

In order to recover the VHT, the unpaid amount may be added to the property tax roll for the property, and can be collected in the same manner as property taxes. As a result, the VHT assessed effectively runs with the land. The City of Toronto, therefore, maintains the right to pursue any unpaid VHT against the current property owner.

In theory, this means the purchaser of a new home may be held liable for the principal debt from a previous VHT assessment, where the previous property owner failed to file a declaration as required, or where that property owner failed to dispute that VHT assessment successfully.

If you are searching to purchase a property in Toronto, you should ensure that your advisor (whether a real estate agent or lawyer) performs an adequate off-title search of the City of Toronto's records to confirm the status of any VHT declarations filed for the property you intend to buy.

Any issues identified concerning the VHT declarations for the property should be included in your real estate lawyer's requisition letter to the seller, so that any unpaid amounts can be dealt with prior to the closing date for sale. However, it may not always be feasible to audit a previous owner's usage of the property you are purchasing, to confirm if the VHT declarations that the previous owner filed were accurate.

You should, therefore, always ensure you have adequate title insurance when purchasing a home in Toronto to protect you against any losses related to an unexpected property tax bill stemming from a VHT assessment.

Additionally, it may be worth considering a separate clause or indemnity in the purchase and sale agreement for the property to account for an unexpected future VHT assessment against the property. Any modifications to the standard-form purchase and sale agreement for the sale of real property should be prepared by a lawyer specializing in real estate matters.

David J Rotfleisch, CPA, JD is the founding tax lawyer of Taxpage.com and Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law corporate law firm and is a Certified Specialist in Taxation Law who has completed the CICA in-depth tax planning course. He appears regularly in print, radio and TV and blogs extensively.

With over 30 years of experience as both a lawyer and chartered professional accountant, he has helped start-up businesses, cryptocurrency traders, resident and non-resident business owners and corporations with their tax planning, with will and estate planning, voluntary disclosures and tax dispute resolution including tax audit representation and tax litigation. Visit www.Taxpage.com and email David at david@taxpage.com.

Read the original article in full on Tax Law Canada. Author photo courtesy Rotfleisch & Samulovitch P.C. Title image: iRawpixel, Toronto skyline (Scott Webb).