Spotlight: Property Tax
Vancouver, Toronto and Montréal continue to post the highest commercial-to-residential ratios, according to a new report by Altus Group and the Real Property Association of Canada (REALPAC) that takes an in-depth look at property tax rates in 10 major urban centres across Canada and analyzes the ratio of tax rates between commercial and residential properties.
Of the municipalities surveyed in the 2017 Canadian Property Tax Rate Benchmark Report, Vancouver is the only city to post a commercial-to-residential tax ratio in excess of 4:1. Vancouver saw the largest bump in its ratio, increasing to 4.87 in 2017 from 4.38 in 2016. Toronto’s ratio decreased very slightly, by less than one per cent, to 3.81. Montréal remained above average but experienced a small reduction from its 2016 ratio due to dropping commercial rates while residential rates remained relatively flat.
Governments face the ongoing challenge of funding municipal budgets while trying to manage the perceived fairness of the different property tax rates paid between commercial and residential taxpayers. Both residents and business owners pay property taxes, but the rate they pay varies as taxing authorities set these rates at their discretion.
The report reveals that in eight of the 10 cities surveyed, commercial tax rates were at least double those of residential tax rates. This indicates that a commercial property would incur property taxes more than twice the amount of an equally valued residential property. For the tenth consecutive year, Vancouver, Toronto and Montréal posted the highest commercial-to-residential ratios in the country.
“With the increase in property values, tax rates should trend lower as municipalities are able to collect the same amount of tax revenue given that the higher property values create a larger assessment base,” said Terry Bishop, president of Property Tax Canada at Altus Group. “A lower commercial property tax ratio should help make cities more competitive, promote job growth and can help to generate more stable and sustainable revenue.”
While both commercial and residential property tax rates in Vancouver saw a decrease in 2017, the ratio between the two increased by over 11 per cent to 4.87, the highest in Canada. Vancouver continues to be the only city to post a commercial-to-residential tax ratio in excess of 4:1, well above the average of 2.85:1. The city’s record-breaking housing market provided a potential opportunity to adjust the residential tax rate and close the gap between residential and commercial tax rates. However, the city of Vancouver elected to decrease its residential property tax rate by almost 20 per cent over the last year while the commercial rate only decreased by 10 per cent, driving the commercial tax ratio up.
For a thirteenth year, Toronto’s commercial-to-residential tax ratio declined, decreasing to 3.81. However, despite the multi-year downward trend, this year showed a slight pause with a less than one per cent decline from the previous year. This means commercial rates will need to decrease further if the city is to achieve its goal of improving the business climate and increasing competitiveness with its target ratio of 2.50 by 2023.
Meanwhile, Montréal continues to carry the highest commercial property tax rate in Canada. However, it successfully halted a 10-year upward trend by decreasing its commercial-to-residential ratio to 3.77. While representing only a 1.21 per cent decline in its ratio, this is a positive step towards bringing commercial taxes down to a level more in line with the rest of the country.
Halifax, Calgary and Ottawa sit just below the average with ratios of 2.77, 2.73 and 2.67, respectively. Edmonton posted a commercial-to-residential tax ratio of 2.44 and Winnipeg of 2.01. Winnipeg’s business tax, which commercial owners consider to be a subset of the property tax, would push the City’s ratio closer to the average. Between 2016 and 2017, Regina and Saskatoon saw the largest decrease in commercial ratios of the cities surveyed, dropping 21.61 per cent and 13.50 per cent, respectively. These two cities continue to post the lowest overall commercial-to-residential ratios approximating 1.70 and are the only two cities with ratios below 2:1. This decrease is partially driven by an update in the assessment base for the 2017 tax year to more current values.
The report also examines the property tax ratio on multi-residential properties which compares the residential property tax rate to the multi-residential property tax rate. The findings indicate that Ontario renters are carrying a disproportionate burden of property tax. While renters are being taxed equally to homeowners in most of Canada with an average ratio of 1:1, Ontario cities are showing that apartment buildings built before 1998 carry significantly higher ratios with Ottawa at 1.38 and Toronto leading the pack at 2.21. The higher levels of taxation on older multi-residential buildings can pose a potential challenge for landlords looking to direct funds to needed repairs, maintenance and building infrastructure upgrades.