Altus Group report reveals commercial tax rate in major Canadian cities reaching more than three times the residential rate

Across Canada, all property owners 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. This report reviews how Canadian municipalities respond to the challenges of increased costs and market fluctuations, and monitors the impacts of municipal tax policies on commercial taxpayers.

Commercial-to-residential tax ratio

The commercial-to-residential tax ratio is the key measure in the report that compares the commercial tax rate to the residential tax rate. For example, if the ratio is 2.50, this means that the commercial tax rate is two-and-a-half times (2.5x) the residential tax rate.

The 2023 report found that six out of the 11 cities surveyed have a commercial tax rate that is more than three times the residential tax rate, which means that a commercial property incurs property taxes more than three times the amount of an equally valued residential property. The average commercial-to-residential tax ratio in 2023 was 2.82, reflecting a slight increase of 0.84% from the 2022 average ratio of 2.80. The rise in the average ratio was largely driven by the ratio increases in Calgary, Montreal, Halifax and Quebec City. The results raise questions of inequity in the distribution of the tax burden that could weigh on Canada’s business viability and community growth.

"In today's rapidly changing commercial real estate environment, it is crucial for governments to take a proactive approach in addressing shifts in property values while maintaining tax fairness for both commercial and residential property owners. Jurisdictions such as Ontario need to consider more frequent property reassessments to align with market dynamics,” said Ryan Fagan, Head of Operations & Technology, Tax Canada at Altus Group.

"As we assess this ever-changing landscape of commercial and residential property tax, it becomes clear that adaptability is key to navigating these times. Property owners and stakeholders must stay informed about regulatory changes and leverage data-driven insights to optimize their tax strategies.”

Regional trend analysis

• Vancouver’s rise in residential values contributed to a 2.34% decline in its ratio to 3.37, signaling a downward trend.

• Calgary observed the largest commercial-to-residential ratio increase of the cities surveyed, climbing 9.49% to 3.36, continuing the trend of increasing its rate significantly for the past two years.

• Edmonton’s ratio has spiked upward at various times over the past two decades but showed a decrease of 3.45% in 2023, remaining below the average at 2.59.

• Saskatoon and Regina continued a seven-year trend of posting a ratio below 2.0 at 1.61 and 1.50, respectively, the lowest in the survey. The ratios in both cities have continuously dropped and since 2017, these two cities have had the most equitable commercial to residential ratios in this study.

• Winnipeg’s ratio remained relatively static and below the average at 1.93, but these rates do not account for the education tax rebates or the business tax. Since the province of Manitoba implemented education tax rebates in 2021, the rebate for residential properties has increased from 25% to 50%, while the commercial rebate remains at 10%. This difference in rebate, combined with the additional business tax commercial properties pay based on annual rental value, means that the effective commercial-to-residential ratio in Winnipeg is much higher than it appears, and has increased significantly since 2021.

• Toronto continues its slow progress toward equity as its commercial-to-residential ratio dropped by just over 3% to 3.26, while Ottawa's ratio crept up slightly but remains below the average at 2.42. The long delay in Ontario's reassessment is magnifying the inequities for many commercial taxpayers.

• Montreal’s reassessment resulted in greater assessment increases for residential properties than for commercial and continued a five-year trend of posting the highest commercial-to-residential ratio of all cities surveyed, rising more than 6% to 4.33, well above the national average.

• Quebec City’s ratio first climbed above the average in 2013 and remained well above the average in 2023 with a ratio of 3.56. Over the past 20 years, Quebec City has steadily increased commercial tax rates relative to residential and now it has one of the highest ratios of the cities in this study.

• Halifax’s new commercial tax policy took effect this year, adding complexity to commercial tax bills and increasing tax rates for properties in business and industrial parks, noting a ratio increase of 1.27% to 3.10.

Ontario’s failure to launch reassessment

This year’s report provides a spotlight on the extended tax cycle in Ontario, Canada’s most populous province. The province recently confirmed that no reassessment will take place for 2024 without providing a timeline for the next assessment update. At a time when most regions in Canada reassess properties annually – and even those annual assessments are resulting in tax shifts – next year’s assessments in Ontario will be nine years out of date. The ongoing delay in reassessment is compromising the province’s economic competitiveness and could ultimately translate to higher property tax rates.

A copy of the Altus Group 2023 Canadian Property Tax Rate Benchmark Report can be downloaded here.