In April 2024, the Canadian federal government introduced a plan to build nearly four million new homes by 2031. To facilitate the rapid construction of these homes, the government is rolling out a series of policies intended to incentivize more residential development, including by potentially targeting surplus, underused, and vacant lands for an additional tax. This new tax on vacant residential land is being proposed as a measure to encourage development, promote efficient land use, and reduce speculation.
The federal government is engaging in a public consultation process to gather input from a wide range of stakeholders, including provincial, territorial, and municipal governments, homebuilders, non-market housing providers, housing experts, and owners of vacant residentially or mixed-use zoned land (collectively, "Stakeholders"). The goal is to determine how a vacant land tax could be implemented in a way that is both effective and equitable, considering the diverse circumstances across the country. This consultation period will conclude on December 31, 2024.
Policy framework for the taxation of vacant lands
The proposed tax framework aims to achieve several key objectives:
- Encourage timely development: By taxing vacant lands, the government hopes to spur development, transforming idle properties into much-needed housing.
- Discourage speculative holding of land: Speculative holding can inflate property values and hinder new housing projects. A vacant land tax aims to reduce speculative holding by making it more costly to keep land undeveloped.
- Generate revenue: The tax would provide a new revenue stream for various levels of government, which could then be reinvested into housing initiatives.
The core criteria for the vacant land tax base is proposed to include:
- Vacancy: Land that is vacant, which could include surface parking lots and lots with derelict structures.
- Zoning: Land that is residentially or mixed-use zoned, eligible for housing development.
- Infrastructure Serviceability: Land that can be serviced with essential municipal infrastructure (roads, water, sewage, electricity).
- Physical Developability: Land that is appropriately sized and free from contamination or other development barriers.
The federal government recognizes Canada's diversity and the need for flexible, localized policies. It is exploring a model that allows provinces, territories, and municipalities to tailor the vacant land tax to their specific needs. Each jurisdiction would be able to define these concepts further, depending on local needs, land availability, and housing market conditions. Importantly, the government acknowledges that the application of a vacant land tax may need exceptions or special rules to avoid unintended consequences.
Key questions for all stakeholders
The government invites Stakeholders to contribute their perspectives on the vacant land tax proposal, including on:
- Effectiveness of the tax: Will a vacant land tax incentivize housing development in your community? What are the potential benefits and drawbacks of such a policy?
- Development barriers: If you own vacant land that meets the proposed criteria, but are not actively developing it, what are the reasons behind this? Are there specific barriers, such as high development costs or zoning challenges, that prevent you from moving forward?
- Criteria for vacant land: Are the proposed criteria for vacant, serviceable, and developable land appropriate? Should surface parking lots or derelict structures be classified as vacant, or should they fall outside the scope of the tax?
- Special considerations: In cases where a development project is underway, should the vacant land tax be suspended? What other circumstances should warrant a pause or exemption from the tax?
- Tax rate: What tax rate would be most effective in encouraging development while maintaining fairness for landowners? Should the tax rate vary by jurisdiction, considering differences in land costs and housing demand?
Additional questions for Provinces, Territories, and Municipalities
The government also poses additional questions for Provinces, Territories, and Municipalities to consider and provide comments:
- Engagement: Would your jurisdiction be interested in working with the federal government to introduce a vacant land tax? What challenges or opportunities do you see in implementing this measure locally?
- Impediments and solutions: What barriers exist in your region that might prevent the successful introduction of a vacant land tax? How can these obstacles be overcome, and what resources or support would your jurisdiction require?
- Funding allocation: How should federal funding be allocated to jurisdictions that implement a vacant land tax? What factors should inform the distribution of this funding?
- Other considerations: Are there additional factors or concerns that should be taken into account in the design of a vacant land tax?
Do you have comments or feedback on the proposed taxation of vacant lands?
Stakeholders are encouraged to share their insights before the consultation period concludes by email to the Director General, Sales and Excise Tax Division at VLT-TTV@fin.gc.ca.
If you have any questions regarding the consultation process or how the proposed tax may impact your operations, or would like assistance in preparing a submission, please contact a member of our Sales, Commodity and Indirect Tax or Municipal, Planning & Land Development groups.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
