Owning a home in Canada is associated with additional costs, one of which is property tax.
While the amount paid as property tax may be significant, its percentage value is only a small fraction of the property value in hot real estate market cities of Toronto and Vancouver. For example the property taxes in BC are usually less than 0.5% of the assessed property value and Vancouver’s 2020 residential property tax rate, at 0.2925%, is the lowest rate in Canada.
Why is Property Tax Low in Hot Real Estate Cities?
In Ontario, Toronto’s property taxes are the lowest and for example the residential property tax in Toronto in 2020 was 0.5997%.
Wondering why these large cities have such low property taxes?
One of the major reasons for this is that both cities have experienced significant price growth within the last decade, and they both are highly populated. Therefore, the burden for property tax is shared among the cities’ occupants, and this results in the ratio of property tax to the property value being very small.
Should We Prepare for an Increase in Property Tax by 2022 in Canada’s Highly Populated Cities?
COVID-19 has had unusual impacts on Canadian real estate. As less people immigrate into cities like Toronto and Vancouver due to COVID-19 restrictions, property price growth in these cities may pause or even decline.
Another crucial factor is the negative effect this pandemic has had on businesses, leading to many companies being unable to pay their property taxes- causing an overall reduction in municipal revenue from commercial property taxes. When this happens, cities may increase their residential property tax to compensate for the lowered business property tax revenue.
Since we project that the property tax amount will go up while property prices go down, the resultant property tax rates will increase. As such, many of these densely populated cities that currently enjoy low property tax rates may have to adjust the rates to fit into the new reality.
Can Anything be Done to Maintain Property Taxes at Similar Rates?
Yes. If the Federal Government helps the Municipals by infusing money into them to cover for lower revenue from property taxes, this will help maintain property tax rates at their current rates (or similar rates).
While this has been a proposed solution in the US, the outlook in Canada is not encouraging, as the Canadian government has already pumped billions of dollars into the economy as part of Canada’s COVID-19 Emergency Response Plan, and may be unable to subsidize the municipalities.
Thankfully, in spite of likely increase in residential property taxes in Canada, big cities will still enjoy relatively modest property taxes when compared to the property value.
Conclusion
- One of the biggest costs of homeownership in Canada is property tax
- Big Canadian cities like Vancouver and Toronto enjoy low property taxes, compared to the property value in these cities.
- Due to COVID-19, housing prices in Canada are projected to drop and this will mostly affect large cities. Also, businesses affected by the pandemic may be unable to pay their property taxes
- These factors might lead to an increase in property taxes in these large cities, on or before 2022. However, when compared to property value, the fraction paid as property taxes is expected to remain moderate.
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