Vacant Unit Tax – Where did this Come from and Why

In recent years, several Canadian municipalities—including City of Ottawa, City of Toronto, City of Hamilton and City of Windsor —have introduced a Vacant Unit Tax (VUT) as part of their property tax systems. This tax is applied to residential properties that remain vacant for a defined portion of the year. The goal is to encourage property owners to keep homes occupied or available for rent rather than leaving them empty during a time when housing supply is tight. While the tax is collected through the municipal property tax system, its authority ultimately comes from provincial legislation.

The legislative foundation for this tax stems from the Municipal Act, 2001. This Ontario provincial statute grants municipalities the authority to create and implement certain classes of taxes to address local policy priorities. Amendments to the Act in recent years specifically enabled municipalities to levy taxes on vacant residential properties. Because municipalities in Ontario operate as “creatures of the province,” they can only impose taxes that the provincial government authorizes. Once the province granted that authority, cities such as Ottawa and Toronto were able to design and implement their own versions of the tax.

Municipal governments began seriously considering vacant home taxes in the late 2010s as housing affordability concerns intensified. Large urban centres faced rising home prices, low rental vacancy rates, and increasing population growth. Policymakers looked to international examples and to the model implemented by City of Vancouver, which introduced a similar tax in 2017. The idea was that some properties were being held empty as investments rather than used as housing, and that a tax penalty could incentivize owners to rent or sell those units.

Under current programs, homeowners in Ottawa and Toronto must declare the occupancy status of their residential property each year. If the property is deemed vacant—typically meaning it was unoccupied for more than six months during the calendar year —the owner may be required to pay an additional tax based on a percentage of the property’s assessed value. For example, Toronto initially implemented a 1% tax on assessed value before later increasing the rate, while Ottawa adopted its own version with similar reporting requirements. The administration is handled through municipal property tax systems and enforcement processes.

Cities argue that the expected outcomes of the tax are twofold. First, it aims to increase housing supply by encouraging owners of empty homes to rent them out or sell them. Second, the tax generates additional municipal revenue that can be directed toward housing programs, such as affordable housing initiatives or homelessness prevention efforts. Even if the number of vacant homes is relatively small, the tax can still contribute to policy goals by discouraging speculative property holding.

The vacant unit taxes implemented by Ottawa, Toronto. Hamilton and Windsor are the result of provincial legislative authority combined with municipal policy choices. The province, through the Municipal Act, enabled municipalities to create such taxes, and cities adopted them as part of broader strategies to address housing shortages and affordability pressures. While debate continues about how effective these taxes are in practice, they represent a modern policy tool aimed at ensuring existing housing stock is used more efficiently in growing urban markets.

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