divergent property tax regimes

Cities exhibit divergent property tax regimes

Commercial-to-residential gap stretches most notably in Vancouver and Calgary
Monday, October 30, 2017

The gap between Toronto’s commercial and residential property tax rates narrowed slightly in 2017, but there is still a lot of space to bridge to meet the City’s target for a commercial-to-residential tax ratio of 2.5 to 1 by 2023. For this tax year, the ratio stands at 3.81 to 1 — compared to 3.84 to 1 in 2016 — meaning the city’s commercial ratepayers still face one of the most divergent property tax regimes anywhere in Canada.

Only Vancouver registered a more onerous split — with a commercial-to-residential ratio of 4.87 to 1 — among the 10 major Canadian cities surveyed in the 2017 Altus Group/REALPAC report on property tax rates. Vancouver, Toronto and Montreal were the three cities with commercial-to-residential ratios above the national average of 2:85 to 1, while Saskatoon and Regina recorded the two lowest ratios of 1.72 to 1 and 1.75 to 1.

This annual look at the apportionment of the tax burden, released last week, gives a more complete picture of the pressures on the commercial and multi-residential sectors than simply referencing tax rates. Notably, Vancouver’s 2017 commercial property tax rate was actually more than 10 per cent lower than the 2016 rate, but that largely reflects the city’s soaring property values during a tax period when the residential rate also dropped a startling 19.29 per cent from the previous year.

“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,” says Terry Bishop, president, property tax, Canada, with Altus Group.

The reverse is true in Calgary and Edmonton. Commercial and residential property tax rates rose in 2017, reflecting a decrease in the value of assessment base in those cities. Calgary’s commercial tax rate jumped 11.36 per cent from 2016, equating to an extra $1.81 per $1,000 of assessed value. Edmonton’s commercial tax rate rose 8.54 per cent, or an additional $1.63 per $1,000 of assessment.

Across the 10 cities, commercial property taxes range from $12.44 per $1,000 of assessed value in Vancouver to $37.23 per $1,000 of assessed value in Montreal. Rates in Montreal, Halifax, Ottawa, Toronto and Winnipeg are above the national average of $23.02 per $1,000 of assessment, while those in Edmonton, Calgary, Regina, Saskatoon and Vancouver are below.

Small gains in Toronto and Montreal, larger in Saskatoon and Regina

Vancouver homeowners likewise pay the lowest amount per $1,000 of assessed value, at $2.55, while Winnipeg residential ratepayers top the scale, paying $12.15 per $1,000 of assessment. Toronto’s commercial tax rate dropped 4.53 per cent compared to a 3.83 per cent decline in the residential tax rate — thus translating into this year’s fractionally shrinking tax gap.

Montreal also reversed a 10-year trend of apportioning an ever-increasing share of the tax burden to the commercial sector, as its commercial to residential tax ratio tightened to 3.77 to 1 from last year’s 3.82 to 1. “While representing only a 1.21 per cent decline in its ratio, this is a positive step toward bringing commercial taxes down to a level more in line with the rest of the country,” the report maintains.

Ottawa was unique in lowering the commercial tax rate, which dropped by 0.38 per cent, and increasing the residential tax, which rose 1.48 per cent. This tightened the commercial to residential tax ratio to 2.67 to 1 from last year’s 2.72 to 1.

Halifax did the opposite, raising the commercial tax rate by 0.82 per cent and lowering the residential tax rate by 0.83 per cent. That stretched the commercial to residential ratio to 2.77 to 1.

Winnipeg’s residential rate increase — up 3.12 per cent from 2016 — surpassed the increase in the commercial tax rate, which rose by 1.12 per cent. However, the report suggests the commercial-to-residential tax ratio of 2.01 to 1 isn’t necessarily the complete picture. “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 (national) average,” it states.

Commercial ratepayers in Regina and Saskatoon enjoyed the steepest decline in property tax rates. A 27.56 per cent decrease in Regina pegged this year’s taxes at $16.16 per $1,000 of assessed value — a drop of $6.15 per $1,000 of assessment from 2016. Saskatoon’s commercial tax rate fell more than 21 per cent from 2016, resulting in taxes of $14.57 per $1,000 of assessed value. Residential tax rates also dropped in the two cities — by 8.73 per cent in Saskatoon and 7.59 per cent in Regina.

Multi-residential inequities

Meanwhile, multi-residential ratepayers in the Ontario cities, Toronto and Ottawa, are taxed at a much higher rate than their peers elsewhere in country. Toronto’s multi-residential levy is 2.21 times greater than the residential rate; Ottawa’s is 1.38 times greater.

Residential landlords and their tenants pay property tax equivalent to $14.63 per $1,000 of assessed value in Toronto, while homeowners pay $6.62 per $1,000 of assessment. In Ottawa, the multi-residential tax rate is $14.70 per $1,000 of assessed value versus the residential rate of $10.68 per $1,000 of assessment.

This is despite the fact the Ontario government froze multi-residential taxes for 2017, largely in response to the spikes in assessed value arising from the 2016 reassessment. There are also major tax anomalies within the multi-residential asset class itself since Toronto and Ottawa were early adopters of Ontario’s “new multi-residential” property tax class.

This previously optional, but now mandatory tax class for newly constructed rental residential buildings ensures that new purpose-built rental properties are taxed on par with the residential property tax rate for a period of up to 35 years. Although aimed at encouraging new rental housing supply, the policy also conveys an operating cost advantage to the further detriment of older competition.

“The higher levels of taxation on older multi-residential buildings makes it more challenging to direct funds to needed repairs, maintenance and building infrastructure upgrades,” the Altus/REALPAC report states.

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