Major Canadian cities continue to struggle to balance burden between commercial & residential taxpayers

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 examines how shifts in value between classes of property influence tax increases with a spotlight on how municipal efforts to mitigate tax increases can further contribute to inequities.

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 2022 report found that seven out of the 11 cities surveyed have a commercial tax rate that is more than double the residential tax rate, which means that a commercial property incurs property taxes more than twice the amount of an equally valued residential property. The average commercial-to-residential tax ratio in 2022 was 2.80, reflecting a slight increase of 2.42% 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% to more than 10%.

“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,” said Kyle Fletcher, President of Property Tax Canada at Altus Group. “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.”

Regional trend analysis

• Calgary observed the largest commercial-to-residential ratio increase of the cities surveyed, climbing 10.27% to 3.07. Continuing the trend since 2015, the commercial assessment base contracted year-over-year due once again to declining office assessment values, while the residential assessment base experienced a notable increase of 8% year-over-year due to a surging single-family market.

• Halifax made positive changes in its ratio for 2021 taxation, but reversed course for 2022. The Halifax Regional Municipality increased the commercial tax rate and dropped the residential rate, resulting in a 7.16% increase in its commercial-to-residential ratio, to 3.06. 

• Edmonton faced similar pressures to Calgary as a result of the latest reassessment, causing its ratio to increase by 6.5% to 2.68.

• Vancouver saw a decrease in both residential and commercial tax rates, reporting the lowest rates of the cities surveyed. As the rate of taxation for residential properties dropped further than the commercial rate, its commercial-to-residential tax ratio increased by 1.35% to 3.46, ranking the third highest out of all cities surveyed.

• Quebec City first climbed above the average in 2013 and remains well above the average in 2022 with a ratio of 3.51.

• Montreal reduced both residential and commercial tax rates in 2022, but a greater reduction to residential resulted in a ratio increase of 1.08% to 4.21, continuing a four-year trend of posting the highest commercial-to-residential ratio of all cities surveyed. With shifts in assessment expected to occur with the 2023 triennial role, the city will face pressure to further increase the commercial tax rate relative to residential. 

• Ottawa raised its commercial rate by a greater percentage than residential, resulting in a 0.95% increase to its ratio for the first time since 2017, now sitting just below the national average at 2.39.

• Saskatoon and Regina continued a six-year trend of posting a ratio below 2.0 and remained static between 2021 and 2022 at 1.61 and 1.51, respectively, the lowest in the survey. Saskatchewan is in the second year of its four-year assessment cycle and values have not shifted.

• Winnipeg’s ratio dropped slightly from 1.93 to 1.92 but would be above 2.20 if the School Rebate and business tax were considered. It is anticipated that the School Rebate will be increased for 2023, further widening the gap between commercial and residential taxes. 

• Toronto continued to move toward tax equity, increasing the tax rate for residential properties by a higher percentage than commercial. As a result, the commercial-to-residential ratio continued its 18-year downward trend and dropped by 2.42%, the most substantial reduction in the survey.

Tax mitigation tools

New for 2022, the report provides a spotlight on tax mitigation tools that are currently being implemented or proposed across the cities surveyed. In response to sudden or significant increases in tax burden, or for other policy reasons, provincial or local governments may implement certain measures such as assessment phase-ins, tax rate adjustments, capping or rebate programs to impact the amount of taxes paid by a segment of properties. The challenge with tax mitigation tools is that for every property that benefits, another property must subsidize those benefits.

A copy of the Altus Group 2022 Canadian Property Tax Rate Benchmark Report can be downloaded here.