A handful of Ottawa homebuyers have been hit with hefty property tax bills months after purchasing their properties. The reason: the city’s new Vacant Unit Tax (VUT). The VUT charges owners one per cent of their residential property’s assessed value if the property was deemed vacant for more than 184 days (six months) in the previous calendar year.
Every homeowner was required to complete a VUT declaration by March 21. Those who didn’t were fined $250 as a late charge. Where issues have arisen is for homebuyers who purchased a property before this declaration date. In a handful of cases, the seller forgot to complete the VUT declaration or completed it incorrectly. Rather than charging the seller, the VUT shows up on the homebuyer’s next property tax bill, despite them having no control over the property’s previous occupancy. According to the city, this is because the VUT is tied to the property not the owner.
Nick Labrosse, a local realtor, says that while none of his clients have been hit with the actual tax, many of them have received letters from the city telling them that they’ve improperly filled out the documentation, accruing late charges as a result. “That’s where we’ve noticed more issues with this tax,” he says.
Why was the tax introduced?
City council approved the VUT on May 11, 2022, with 2023 being the first year it was implemented. The objective of the tax was to convince owners of vacant properties to sell. More properties on the market would help alleviate the current housing crises.
“There were a lot of foreign investors who wanted their money in Canadian real estate,” says Labrosse. “And many of these investors see tenants as liabilities. They would rather keep the unit vacant in order to avoid incurring damages or having to deal with the landlord-tenant board, which is currently backlogged six to eight months. So, a lot of these people were buying these properties and keeping them vacant, banking on equity growth rather than rental income.”
While Labrosse says he has yet to see a flood of new listings caused by the tax, the city did report that it earned $11.5 million in revenue in the VUT’s first year, collecting from 3,290 vacant properties.
“I don’t know how effective it is because I’m not sure there’s even a task force going around verifying all these properties,” says Labrosse. “I think it’s more of a way for the city to recover some money.”
How do you avoid the tax?
The most obvious answer is to keep your property occupied for 184 days of the year and file your declaration on time. But there are, understandably, extenuating circumstances. That’s why the tax includes exemptions, such as if the owner died in the previous year or was moved to a care home.
Due to issues with homebuyers being dinged by the sellers’ VUT, the city has recently included an exemption around sales. If a closing happens between January 1 and the VUT declaration date, then it’s the seller’s responsibility to complete the VUT declaration. If the closing happens between May 1 and December 31, then it’s the buyer’s responsibility.
However, to avoid the complications of filing an appeal for exemption, Labrosse says your real estate lawyer should perform a title search to look for any outstanding fees before closing, flagging the VUT for the seller’s lawyer. Your real estate agent could also put a provision in your agreement of purchase and sale asking the seller to provide a copy of the property’s completed VUT declaration. And finally, you could have your lawyer indemnify the seller, meaning if the seller forgets to declare the VUT, they’re responsible for any fees charged.
Could the tax affect cottagers?
The tax does have an exemption for cottage rentals, but not cottages used as secondary properties. Thankfully, Labrosse says there are very few cottages that fall within Ottawa’s boundaries.
“The majority of people in Ottawa have cottages in Quebec, so the tax is not applicable. And cottage country in the west end of Ottawa falls into another district, so also not applicable,” he says. “I would say there’s a very small percentage of the population here that owns a primary residence and a cottage both in the city of Ottawa.”
The VUT has been adopted by other cities, such as Vancouver, Toronto, and Hamilton. Ontario’s Peel Region is also considering the tax. But it has yet to be introduced in any cottage municipalities.
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