Federal Government Considering a Tax on Vacant Land

Guest Columnist Geoff Currier

In 2013, author and commentator Mark Milke penned a book which ought to have been on every bookshelf in this country. It was titled “Tax Me, I’m Canadian.”  While some of the provisions of the Tax Act in that edition may no longer apply, it is still very much worth the read. Milke lays bare the many and varied ways our governments take our money away from us. (Yes. It is our money, not theirs).  Now, another new tax regime is being contemplated: a tax on privately owned, vacant land and the reasons may surprise you. You may wish to let your clients know about this.

In the spirit of believing that the solution to each and every Canadian problem is a new tax, the federal government is considering placing a tax on vacant land which has been designated for residential development. The October news release from Ottawa states that the proposed tax is intended to “ encourage private sector landowners to develop their vacant land.” Encouragement in this case comes in the form of the stick rather than the carrot.

The impetus for this proposed tax can be found in the 2024 federal budget which states the ambitious goal of creating four million new homes in Canada by 2031. The current housing shortage can be traced in no small part to the government’s current immigration policy. Canada has been opening its doors to unprecedented levels of immigration with little forethought as to where these prospective Canadians will live. 

Consequently, we find ourselves in a reactive mode. There is vacant, unused land available so the objective is to get the private sector to get shovels into the ground and create housing for our rapidly increasing population. But there is more to the story.

The news release goes on to state that the new taxes “would be intended to discourage speculative holding of land by making it more costly to keep land undeveloped. (and) such taxes could provide a source of revenue for various orders of government, which could be used to fund the construction of more new homes.” 

As usual, they buried the lead. The last reason given should have been in the very first line. A new tax is always about generating revenue for a government. Cloaking it in noble intentions does not change that fact. This begs the questions, if you are going to use that tax revenue to provide builders with money to create new housing, why take it away in the first place?  It remains unclear if the government plans to get into the business of building houses or if it’s to be left up to the private sector.

The government’s news release concedes that there is no single solution to the lack of housing. It spares us the old line that there is no magic bullet but it does say “We need every partner using every possible lever to build the homes Canadians need.”  The news release also acknowledges that any of the land up for discussion must be serviceable by local municipalities with essentials like water, sewage and electricity. Many older Canadian cities may already be struggling to meet the demand of growth in terms of providing these services. This represents a further challenge to development for some municipalities already struggling to balance their books.

As is always the case, Beelzebub resides deep in the details. Given the variety of tax structures in each region of the country, applying a tax to builders sitting on vacant land will be an administrative challenge. Each province and territory will have its own requirements in terms of the level of taxation, the definition of terms like “vacant” and “surplus”, the local demand for housing and what type and critically important, how efficient municipalities are when it comes to providing building permits. In some jurisdictions, red tape can delay building projects by months or even years. 

Then there are the potential tax rules to administer, which creates even more complexity for Canada's overly complex taxation systems. What constitutes “vacant” or “underused” land? How do laws and regulations differ in each province and territory? What would the tax rate be?  What are the reasons some land is not being developed for housing? Which of these realities will result in numerous tax exemptions?

Perhaps most important, will such a new tax distort the activities in the marketplace and mire the results in red tape? Will this tax foster a haven for real estate development or repel investment altogether? It’s acknowledged that there is a massive housing shortage in Canada. To make up for the shortage the construction industry must increase its productivity.

Unfortunately, that has not been happening. A recent TD report on Canadian productivity states that of all sectors in this country “construction is the worst of the lot with labour productivity at a near 30 year low.”  So where, precisely, in the public and private sectors, are we to find the people to build these new homes? Will new immigrants in our communities perhaps be the catalysts for this expertise? That could result in a virtuous circle. 

Bottom Line: The question being posed by the government is whether or not a tax on vacant land would be at least a partial solution.   Now here is your opportunity to weigh in. Feedback has been requested  from stakeholders, the public and  provincial and territorial governments. The information can be found here. https://www.canada.ca/en/department-finance/programs/consultations/2024/consultations-on-the-taxation-of-vacant-lands/ctvl.html. Submissions are open until the end of the year.