Ontario expands vacant home, foreign speculation tax regimes

Ontario will give municipalities across the province authority to impose a vacant home tax (VHT), the province announced in its 2024 budget tabled Tuesday.

Currently, only Toronto, Ottawa and Hamilton have the authority to impose a VHT.

“An unoccupied home is unacceptable in a housing crisis,” the government said in the budget. The measure, along with other housing-affordability announcements, would help increase supply, the budget said.

Ontario would create a VHT framework that sets out best practices for implementing the tax and would encourage municipalities to set a higher tax rate for foreign-owned homes.

Toronto introduced an annual 1% VHT in 2022 and increased the rate to 3% for 2024. Ottawa introduced a 1% VHT in 2023. Hamilton has not introduced a VHT.

The provincial government also proposed amending the 25% non-resident speculation tax (NRST) “to support compliance and improve fairness.”

One proposed amendment to the NRST clarifies that exemptions to and rebates of the tax aren’t available if a foreign entity acquires a beneficial interest in a home without obtaining legal title.

Another amendment specifies that a purchaser must intend to occupy the home as their principal residence within 60 days of the home purchase to be eligible for an exemption.

The proposed amendments to the NRST would be effective as of March 27, a Ministry of Finance official said. 

“Data is a powerful tool to better understand vacancy and foreign-purchasing patterns, while simultaneously supporting tax compliance and incentives to discourage speculation,” the budget said.

The NRST applies on the purchase price of a residential property in Ontario by individuals who are not Canadian citizens or permanent residents, or by foreign entities.

The province first introduced the NRST in 2017 for the Greater Golden Horseshoe region at a rate of 15%. In March 2022, the rate was increased to 20% and applied province-wide. In October 2022, the rate was increased again to 25%.

These moves were meant “to tackle the issue of foreign investors speculating on the province’s housing market, in order to help make more homes available for the people of Ontario.”

The government also proposed allowing municipalities to reduce the municipal property tax rate for new multi-residential properties “to further encourage the development of purpose-built rental properties.”

In fall 2023, the province removed the 8% provincial portion of the HST on qualifying new purpose-built rental housing. This move mirrored a federal move and effectively removed the 13% HST on qualifying new purpose-built rental housing in Ontario.

The enhanced rebate would apply to projects that begin construction between Sept. 14, 2023 and Dec. 31, 2030 and complete construction by Dec. 31, 2035.