Item - 2020.EX19.3

The Executive Committee recommends that:

1. City Council direct the Chief Financial Officer and Treasurer to undertake the following steps to develop a Vacant Home Tax Program and to report back with a recommended taxation, collection, exemptions and enforcement design for a Vacant Home Tax by the end of the second quarter of 2021 for implementation commencing in the 2022 taxation year:

a. establishing a dedicated interdivisional project team to lead the implementation of a Vacant Home Tax;

b. engaging with Provincial staff to develop any necessary regulations;

c. engaging with City Legal to develop the necessary by-law to implement a Vacant Home Tax;

d. engaging with CIT and others to build the necessary technical infrastructure to administer a Vacant Home Tax, including a universal declaration system, compliance/audit database and payment system;

e. undertaking public education and awareness campaigns to ensure homeowners are aware of the tax, applicability of the tax and requirement to declare on an annual basis;

f. form an audit and compliance team to develop audit procedures and protocols, review annual declarations, identify non-compliance with the tax and create annual reports on the impact of the tax; and

g. studying the creation and governance of an external advisory team consisting of industry experts and academic institutions who can advise the City of monitoring, evaluation and implementation.

2.  City Council request the Chief Financial Officer and Treasurer and the Executive Director, Housing Secretariat to report back to the Executive Committee by the end of the second quarter of 2021 on exempting the principal residence of tax payers from the application of the Vacant Home tax, such report to include:

a.  a review of the City of Vancouver's application of the Empty Home Tax Principal Residence policy and its applicability to the Toronto Vacant Home Tax;

b.  how a principal residence exemption can protect Toronto Snowbirds; and

c.  any possible impact of the Toronto Vacant Home Tax policy on the application of the Federal Capital Gains Tax on the sale of a principal residence.

3. City Council authorize a budget allocation of $5.0 million in 2021 and $6.0 million in 2022 to fund the estimated start-up costs associated with this Tax Program.

This report responds to all previous requests for information identified by City Council with respect to implementing a vacant home tax policy tool in Toronto.

The report presents the findings of a commissioned study by KPMG titled, “A Review of Issues to be considered for the Taxation of Vacant Homes in Toronto” (the Study) to address the public policy rationale for such a tax, potential tax design features, and a jurisdictional review of municipalities that have adopted such taxes.

The report further identifies current housing market conditions and challenges within the context of the COVID-19 pandemic and lays out a recommended path forward for Council consideration.

The public policy rationale features examined include: the impact a vacant home tax has had on the supply of affordable housing and rental vacancy rates in other jurisdictions;  a comparison of a vacant home tax with other strategies used by other jurisdictions to increase the supply of affordable housing and rental vacancy rates, e.g. incentives for purpose-built affordable rental apartment units;  the nature and trends in the Toronto housing market that perpetuate the occurrence of vacant homes and the duration of such vacancy;  the extent to which vacant homes are negatively affecting the supply of affordable housing or rental vacancy rates in Toronto; and whether a vacant home tax could achieve the objectives of increasing the supply of affordable housing and increasing rental vacancy rates in Toronto.

The potential tax design features and possible implementation of an effective and efficient vacant home tax program includes:  the definition of a vacant home, the means of identifying vacant homes; possible exemptions, amount per property to be levied, staffing and/or external consultants required to implement a vacant home tax, hardware and software costs, effective enforcement and timing required to successfully roll out a vacant home tax.

The Study contains a comparative analysis of the experiences and results of similar taxes implemented in Vancouver and Melbourne.  Although conditions in the Toronto will require a unique approach, planning will benefit from such detailed policy testing. 

The Study was substantially completed in March 2020 and provides insight into Toronto’s housing market and the conditions that gave rise to the phenomenon of vacant homes and the resulting public policy objectives associated with the legislative authority to tax such units.

The study of the vacant home phenomenon, market conditions, policy rationale and practicality of steps to implement such a tax have all been affected by the COVID-19 pandemic and the associated public health restrictions on all aspects of life in 2020. 

The KPMG study has been updated as at November 2020 (the Study Supplement) to include COVID-19 impacts on the topics discussed in the study.

The Study Supplement notes that although current real estate market conditions exhibit increased rental availability and downward trending rent prices, there is still much uncertainty in long-term projections for the market. Long term housing affordability and availability challenges will most likely persist into the future, and a VHT can be a helpful tool to address these challenges.

Thus, moving forward with the tax at this time must be balanced with considerations of urgency of need, market conditions that may have already affected the supply of housing and the practical ability to carry out the necessary administrative steps and public relations campaign to implement the tax. As the effect of the tax is to change the behaviour of certain homeowners who leave their homes unoccupied, sufficient notice and time to adjust such vacancy (e.g. sell or rent out homes) needs to be built into the implementation plan.

Economic and fiscal policy doctrines normally dictate that governments should not implement new forms of taxation during contractionary market conditions.

Notwithstanding the interplay of current economic conditions, vacant home taxes are designed primarily as a housing policy tool intended to affect the behaviours of owners of vacant homes to sell or rent out such homes and thereby make available homes for occupation, rather than a revenue generating tool for a municipality.

The Study provides an examination of the definition of what constitutes a vacant home for taxation, possible exemptions as well as identification methods, tax rates and potential impacts and effectiveness measurement means. The cornerstone of such a tax is the identification of vacant homes by way of a universal declaration method as proposed in this report, whereby every residential property owner in the City would be required to make an annual declaration as to the occupancy status of their home for the preceding year.

The Study provides a plan for the necessary steps to implement such a tax as directed by City Council and the related administrative and operational infrastructure components required to operate, collect, enforce, process appeals on such a tax.  Costs estimates of implementation and potential conversion rates and tax revenue projection ranges are also provided.

In light of its key findings, the Study lays out recommended actions to be taken to move this new policy tool forward for Council consideration including future staffing and resource needs with a detailed report back on key design features by the end of Q2 2021.