Vacant Unit Tax: The Tax You Have to Opt Out Of

By now, residents are starting to receive messages from the City of Ottawa concerning the Vacant Unit Tax (VUT). Here is what homeowners need to know about this new tax.

There is general agreement that Ottawa is in a housing crisis. The demand for housing exceeds the supply available. At the same time, the most recent census data available indicates that there are approximately 20,000 vacant housing units in Ottawa. The city believes that these vacant homes are a potential source of housing supply. To make more of these vacant units available, the city has decided to tax vacant units to encourage the owners to make them available for rent. The intent of this new tax is supported by Capital Ward Councillor Shawn Menard: “We have people without houses and houses without people in Ottawa. It is time we seriously get to work on putting two and two together.” The city estimates that the Vacant Unit Tax will generate approximately $6.6 million annually and proposes to make $5 million of that available for affordable housing.

This new tax will be levied in 2023 but will apply to the current calendar year. The tax will be levied on all residences (with a few exceptions) that are vacant more than 184 days in a calendar year, and the tax will be 1% of the assessed value of the property. A residence assessed at $500,000 therefore will attract an additional $5,000 in tax. If you forget to make the declaration, and send it in late, you will be liable for a $250 fine.

There are approximately 330,000 residential properties in Ottawa that are liable for this tax, whether the property was vacant or not. To avoid the tax, the onus is on the owner to declare that the property was occupied for more than 184 days in the previous calendar year. If a homeowner has a property that was vacant for more than 184 days in 2022, they will be taxed in 2023, unless they can prove that they are eligible for an exemption. The notices which the city is currently sending out explain how to make that declaration.

Alex Cullen, the Past President of the Federation of Citizens Association, has stated, “the city is using negative option billing as the means of applying the Residential Vacant Unit Tax. Negative option billing, where the onus is on the consumer to apply to be exempt from paying imposed charges, is very unpopular with consumers – and with just cause.” Joseph Muhuni, Deputy City Treasurer, responded to the allegation of negative billing, noting “The VUT is in full compliance with Ontario regulations which allow municipalities to impose a tax on the assessed value of vacant units. The practice of mandatory declaration is demonstrated to be a much more successful method of accounting for vacant homes in a community when compared to alternatives such as voluntary declarations or a complaint-based system.”

Councillor Menard has heard concerns from several residents regarding aspects of how the VUT will be implemented. “The primary concern is in relation to the mandatory declaration that all property owners will have to make regarding whether or not their property is their primary residence or is vacant at tax time” according to Councillor Menard. However, the Councillor adds, “every effort is being made by the city to ensure that all property owners are aware of how and when to declare, and to ensure the declaration itself is as easy and accessible as possible”.

So, what are the exemptions? The major exemption is that the tax will not be levied on a principal residence: if the home is a taxpayer’s principal residence, they will not be taxed. Most homeowners live in their principal residence, so in theory, this tax should not be an issue for them. But the catch is, in order to qualify for this principal residence exemption, the homeowner must submit a declaration to the City stating that the building is their principal residence. Failure to submit that declaration means that they will be taxed.

Houses that are being renovated, houses owned by people in long-term care, houses that have been sold, rural vacation properties, and a few others are also exempt from the VUT.

Details on the Vacant Unit Tax are available by going to ottawa.ca and searching for “vacant unit tax.”

Ron Rose lives in Old Ottawa East. A version of this article was published in the Mainstreeter.

Featured in the January 2023 OSCAR.