Should gaps between commercial and residential property taxes be narrower?

Should gaps between commercial and residential property taxes be narrower?

Should gaps between commercial and residential property taxes be narrower? It might be time for Canada’s biggest cities to reconsider their commercial property tax rates.

In the newly released 2017 Canadian Property Tax Rate Benchmark Report from real-estate consultancy firm Altus Group, 10 major Canadian cities were compared and analysed in terms of the ratio between their commercial and residential tax rates.

“With the increase in property values, tax rates should trend lower as municipalities are able to collect the same amount of tax revenue given that the higher property values create a larger assessment base,” said Terry Bishop, president of Property Tax Canada at Altus Group. “A lower commercial property tax ratio should help make cities more competitive, promote job growth and can help to generate more stable and sustainable revenue.”

The average commercial-to-residential tax ratio was 2.85. In eight out of the 10 cities surveyed, commercial tax rates were at least double the rates for residential properties. Vancouver, Toronto, and Montreal posted the highest commercial-to-residential ratios in the country for the tenth straight year.

In 2017, both commercial and residential property tax rates in Vancouver decreased. However, while the city decided to decrease residential property tax rate by nearly 20%, the commercial property tax rate was lowered by only 10%. Because of that, the ratio between the two rose 11% year-over-year to reach 4.87, the highest among all the cities studied.

Toronto’s commercial-to-residential ratio has declined for a thirteenth year to reach 3.81. However, Altus Group said, the year-over-year decline of less than 1% for 2017 showed a weakening of the trend. “[C]ommercial rates will need to decrease further if the city is to achieve its goal of improving the business climate and increasing competitiveness with its target ratio of 2.50 by 2023,” it said.

While Montreal continued to have the highest commercial property tax rate in Canada, it managed to decrease its commercial-to-residential ratio by 1.21%, halting a decade-long upward trend. “[T]his is a positive step towards bringing commercial taxes down to a level more in line with the rest of the country,” the firm said.

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