Canada’s property tax rate balance tilts against commercial properties

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Gap between commercial and residential property tax rates in Canada is growing

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The gap between commercial and residential property tax rates in Canada is growing, according to a joint study from Altus Group and the Real Property Association of Canada.

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The 2022 Canadian Property Tax Rate Benchmark Report, which was released on Wednesday, found that seven out of the 11 major cities surveyed have a commercial tax rate that is more than double the residential tax rate.

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Overall, the average commercial-to-residential tax ratio in 2022 was 2.80, reflecting a slight increase of 2.42 per cent from the 2021 average ratio of 2.73. The rise in the average ratio was largely driven by the ratio increases in Calgary, Edmonton and Halifax, ranging from 6.5 per cent to more than 10 per cent.

All property owners across Canada pay tax based on the assessed value of their property, but the tax rate per dollar of property value varies depending on whether that property is used for residential or commercial purposes.

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According to Altus Group, the results raise questions of inequity in the distribution of the tax burden that could weigh on the economic recovery.

“The post pandemic market is incredibly volatile, and governments need to be proactive to address the value shifts without increasing inequities between commercial and residential taxpayers,” Kyle Fletcher, president of property tax for Canada at Altus Group said.

“There are two factors that drive property taxes — assessed values and municipal revenue requirements. To achieve equitable taxation and to support economic recovery, governments like Ontario’s need to embrace more frequent reassessment to keep up with market changes, and municipalities need to move away from policies that shift a greater portion of the tax burden to commercial properties.”

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The disconnect of property assessment values from recent market conditions is evident in Ontario’s 2022 and 2023 property tax assessments, for example, which are based on the January 2016 real estate market.

Out of the major Canadian cities researched, the report said Toronto stood out as it continues to move towards tax equity. The city has done so by increasing the tax rate for residential properties by a higher percentage than commercial. As a result, the commercial-to-residential ratio has dropped by 2.42 per cent to 3.36 — the most substantial reduction in the analysis. However, delays in Ontario’s reassessment drive concerns about future tax treatments.

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Montreal on the other hand reduced both residential and commercial tax rates in 2022, but a greater reduction to residential resulted in a ratio increase of 1.08 per cent to 4.21, continuing a four-year trend of posting the highest commercial-to-residential ratio of all cities surveyed.

Calgary and Edmonton straddled the average ratio, with Calgary at 3.07 (a 10.27 per cent increase over 2021) and Edmonton at 2.68 (a 6.5 per cent increase) and posted two of the three highest ratio increases for 2022. In those cities, reductions in commercial assessment bases have led to increases in the commercial tax rates, while residential rates either increased at a lesser rate or decreased.

To blunt sudden or significant increases in tax burdens, provincial and local governments have implemented tax mitigation tools such as assessment phase-ins, tax rate adjustments, capping or rebate programs, but those can create their own problems.

“The challenge with tax mitigation tools is that for every property that benefits, another property must subsidize those benefits,” the report said.

• Email: shcampbell@postmedia.com

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