Varying property tax rates in 11 of Canada’s largest cities reflect market trends and some government policies specific to those locales, but they are also part of a larger national picture in which commercial ratepayers consistently carry a disproportionate share of the municipal tax burden. The newly released 2018 Canadian Property Tax Rate Benchmark Report — an annual effort from Altus Group and the real estate industry association, REALPAC — finds commercial tax rates significantly more than double the residential rates in eight of the surveyed cities.
Vancouver continues to be the most glaring example of uneven distribution, with a commercial-to-residential tax rate ratio of 4.4 to 1. However, even the narrowest tax gap, at 1.72 to 1, translates to an additional payout of $6.25 per $1,000 of assessed value for Saskatoon-based commercial property owners.
“Benchmarking commercial tax ratios provides terrific insight into the nuances of both absolute and relative property taxation,” observes Michael Brooks, REALPAC’s chief executive officer. “Several cities have much work to do to get their commercial property taxes in balance with residential property taxes.”
Pressures in Calgary
A prolonged economic slump has been pushing Calgary’s commercial tax rate upward to counter a decline in property values. At the same time, the City is nearing the end of a seven-year phase-out of the business occupancy tax, which is levied directly to business tenants, and consolidating it with non-residential (commercial and industrial) collection. In 2018, that transfer increased the commercial tax rate by 4.6 per cent, while a drop in the residential tax rate stretched the gap wider in a year when City spending increased.
A commercial-to-residential ratio of 3.06 to 1 places Calgary above the national average of 2.9 to 1 — joining Quebec City, which is new to the survey this year, and the perennial chart-toppers, Montreal, Toronto and Vancouver. Calgary commercial ratepayers incurred the largest jump in taxes of any of the surveyed cities — up nearly 9.5 per cent from 2017. Tax shifts within the non-residential classes have also been notable.
“The office market, specifically downtown, has experienced the greatest impact. Downward pressure on the largest commercial assessment has the effect of driving up the tax rate,” Altus analysts note. “The net effect of these factors has been a drastic shift of liability from downtown office properties to the commercial suburbs. Industrial and retail properties have experienced unprecedented tax increases over the last four years in Calgary.”
Once Calgary’s business occupancy tax is phased out at the end of 2019, Winnipeg will be alone among the 11 cities in collecting this increasingly archaic levy. This, along with the arguably even quirkier frontage taxes, apportioned to commercial and residential properties fronting onto streets where sewer or water mains are located, contributes to one of the narrower commercial-to-residential ratios. In 2018, growth in the commercial tax base helped close it further.
Winnipeg commercial ratepayers have joined their peers in Saskatoon and Regina with ratios below 2-to-1. At 1.98 to 1, the City collected $24.05 per $1,000 of assessed commercial value and $12.12 per $1,000 of assessed residential value.
On the commercial side, that’s roughly equivalent to commercial property owners’ payout in Toronto. There, a commercial-to-residential ratio of 3.78 to 1 garnered about $24.04 per $1,000 of assessed commercial value, while residential ratepayers were taxed at about $6.35 per $1,000 of assessed value. (Royal LePage pegged the median house price in Toronto at $884,000 at the end of the third quarter of 2018 versus a median price of $309,000 in Winnipeg.)
Robust assessment in Vancouver, Toronto and Montreal
The commercial property tax rate dropped in both Toronto and Vancouver due to robust assessed values and ongoing efforts to narrow the commercial-to-residential tax ratios. On a percentage basis, Vancouver’s ratio narrowed most notably among all surveyed cities — from 4.9 to 1 in 2017 to 4.4 to 1 this year. The flux was much more subdued in Toronto, where it inched downward from 3.8 to 1 in 2017.
Despite a strengthening commercial real estate market and a spate of new development, Montreal’s tax rate rose in sync with climbing assessed values. Commercial ratepayers continue to pay the highest taxes, at $37.76 per $1,000 of assessed value, among the surveyed cities. This year’s commercial-to-residential ratio of 3.78 to 1 is slightly wider than 3.77 to 1 in 2017. This translated into taxes of about $9.99 per $1,000 of assessed value for residential property owners in 2018.
Regina was unique among the cities in recording a slightly reduced commercial tax rate alongside an increase in the residential tax rate. Calgary presented the flipside picture. In all cities, commercial and residential rates rose or fell in tandem.
Addressing business competitiveness and fairness to tenants
“We continue to see several cities across Canada shifting the burden of property taxes to business owners. Municipalities should recognize that bringing down the commercial property tax rate is important to help make their cities more appealing to businesses, which helps create job growth and leads to sustainable revenue for the city,” maintains Terry Bishop, who heads Altus Group’s property tax division.
“Businesses are mobile, political boundaries not far away, and excessive property tax burdens are acted upon by prudent managers,” Brooks warns.
Only a handful of cities apply a distinct multi-residential tax rate for purpose-built rental housing, but it delivers a measurable hit to shelter costs in Edmonton, Ottawa and Toronto. Tenants in those cities underwrite tax inequities in their rent that range from an extra $0.93 per $1,000 of assessed value in Edmonton to an extra $6.79 per $1,000 of assessed value in Toronto. Meanwhile, multi-residential condominium buildings are taxed at the more favourable residential rate.
“The higher levels of taxation on older multi-residential buildings can pose a potential challenge for landlords needing to fund repairs and maintenance,” the benchmark report notes.