property tax ratios lopsided against commercial ratepayers

Property tax ratios epitomize commercial burden

Disproportionate share is the Canadian norm, while the gap widens in some cities
Tuesday, October 27, 2020

Vancouver and Calgary took significant steps to narrow their commercial-to-residential property tax ratios in 2020, and Ottawa and Toronto also continued to incrementally close the gap that still sees commercial property owners in those cities taxed at two-and-a-half to three-and-a-half times the rate applied to residential households. In contrast, Montreal’s commercial ratepayers were apportioned an even larger share of the property tax burden than in 2019.

Newly released results of the annual Canadian Property Tax Rate Benchmark Report, produced by Altus Group in partnership with REALPAC, finds the commercial property tax rate continues to be at least double the residential rate in eight of the 11 surveyed cities, with commercial ratepayers in Montreal, Toronto and Quebec City shouldering the most disproportionate shares. In addition to Montreal — where the commercial property tax rate is now more than four times greater than the residential rate — the commercial-to-residential ratio widened in Quebec City, Halifax and Saskatoon. However, Saskatoon still boasts the narrowest gap of the 11 cities at 1:72-to-1.

“COVID-19 has accelerated the need to reduce the commercial-to-residential tax ratio given the significant added pressure currently facing businesses,” maintains Terry Bishop, president of Altus Group’s Canadian property tax division. “Municipalities should recognize that bringing down the commercial-to-residential tax ratio will not only help provide some much-needed relief to struggling businesses during this time, but will also make their cities more appealing to businesses going forward.”

To some extent, 2020 reflects that approach. Averaged across the 11 cities, commercial property tax amounts to $23.57 per $1,000 of assessed value, while the average residential property tax rate equates to $8.98 per $1,000 of assessed value. That is represented in the 2020 average commercial-to-residential property tax ratio of 2:65-to-1 — an improvement over the 2019 ratio of 2:84-to-1.

Significant adjustments in Vancouver and Calgary

Much of this year’s improvement flows from upward adjustments of the residential property tax rate in Calgary and Vancouver. In Vancouver, a tax increase of 36.5 cents per $1,000 of residential value brought a corresponding decrease of nearly $2.60 per $1,000 of commercial value, and translated into a commercial-to-residential ratio of 2:301-to-1 in place of the previous 3:64-to-1. Calgary’s 2020 commercial-to-residential ratio of 2:58-to-1 increased the residential levy by nearly 87 cents per $1,000 of assessed value while cutting $2.61 per $1,000 of value from commercial tax bills.

That follows long stretches in the property tax benchmark report’s 17-year history when Vancouver was commonly listed in the three cities with tax ratios most lopsided in favour of residential ratepayers. Much of this year’s tax largesse can be attributed to the British Columbia government’s 70 per cent reduction in the school tax portion of the commercial mill rate, which was implemented as a COVID-19-related relief measure, but it reinforced a trend that was already unfolding.

“Since 2017, the city’s ratio has decreased from a survey high of 4.87 down to 2.30, representing a 52.8 per cent drop over the course of three years. Vancouver now sits below the average for the first time,” the benchmark report observes.

Calgary likewise implemented a reversal after four consecutive years of increasingly widening gaps between the commercial and residential rates. That occurred as the city tried to balance out the impact of diminishing value of office towers due to the oil and gas industry’s sustained downturn and spinoff high vacancy rates.

“This decrease is the result of the City (of Calgary) realizing that continual pressure on commercial taxpayers is unsustainable,” the benchmark report states. “Calgary City Council has had no choice but to shift more of the tax burden to residents due to the skyrocketing taxes on small businesses over the last three years.”

Residential ratepayers in both cities still pay less than the national average, amounting to $7.52 per $1,000 of assessed value in Calgary and $2.93 per $1,000 of assessed value in Vancouver. Toronto is the only other city where residential ratepayers are taxed below the national average rate, equating to $6 per $1,000 of assessed value. Nevertheless, the seeming discrepancy with higher residential property tax rates elsewhere, notably nearing $12 per $1,000 of assessed value in Winnipeg and Halifax, must be seen in the context of significantly differing residential values among the cities.

Edmonton’s commercial-to-residential property tax ratio also nudged slightly tighter in 2020 — to 2:38-to-1 — working out to $22.22 per $1,000 of commercial assessment. Elsewhere on the prairies, Winnipeg, Regina and Saskatoon are the rare three cities where commercial ratepayers are levied at less than the double the rate applied to residential assessment.

Provinces make COVID-19-related interventions

Montreal’s 4:11-to-1 ratio translates to a levy of $36.99 per $1,000 of commercial assessment versus $9.01 per $1,000 of residential assessment. The tax gap widened by nearly 4.5 per cent compared to the 2019 ratio of 3.93-to-1. Commercial ratepayers in both Montreal and Quebec City did get some COVID-19-prompted relief from the Quebec government, however, through a reduction of the school tax rate. Local councils in both cities have also introduced a property tax freeze for 2021.

Toronto and Ottawa are continuing on a protracted path to targeted narrower tax ratios, with Toronto’s ratio now at 3:62-to-1 and Ottawa’s at 2:46-to-1. This year’s adjustment is the 16th consecutive reduction in Toronto’s commercial tax rate as the city nears the 2023 pledged timeline to hit 2.5-to-1. However, Altus analysts suggest council will have to pick up the pace in order to hit that mark.

Ottawa is one of four cities, along with Montreal, Quebec City and Halifax, where the commercial tax rate exceeds the national average — equating to $26.64 per $1,000 of commercial assessment. Ottawa’s residential ratepayers are also among the most highly taxed. They absorbed a tax increase of nearly 9 cents per $1,000 of assessed value this year and pay the third highest rate of the 11 cities, at $10.85 per $1,000 of residential assessment.

Altus analysts note that Ontario’s provincial education levy is a significant contributor to commercial taxes in both Toronto and Ottawa. “Without significant downward movement in the provincial ratio both Toronto and Ottawa will be challenged to bring their overall ratios down,” the report concludes.

Assessed values in Toronto and Ottawa will remain static for the 2021 tax year after the Ontario government postponed its scheduled reassessment earlier this year. The Manitoba government has also added an extra year to what’s normally a two-year assessment cycle, pushing the start-date of the next cycle to 2023.

“We commend governments across the country for their early and continuing commitments to tax fairness during the pandemic, including deferral programs and payment forgiveness,” says Michael Brooks, chief executive officer of REALPAC. “We encourage municipalities going forward to limit the commercial-to-residential property tax ratio to a maximum of 2-to-1, avoiding the temptation to burden businesses alone with deficits. With the likely economic impacts of the COVID-19 pandemic having lasting effects on municipal and provincial budgets and financing, it has never been more important for governments to maintain healthy and predictable tax rates.”

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