Torontonians like to think of their city as number one, but there's one annual published list on which many citizens dislike seeing Toronto rank first. The survey, commissioned by the Canadian Institute of Public and Private Real Estate Companies (CIPPREC), analyzes property tax rates and assessment data from 20 major Canadian cities. Again, it revealed that property taxes paid by businesses in Toronto are still the highest in Canada.
CIPPREC is a national association comprised of the largest owners, developers and managers of commercial real estate in Canada including publicly traded and large private companies, banks, brokerages, crown corporations, investment dealers, life insurance companies, pension funds and real estate investment trusts. Members currently own in excess of C$70 billion in real estate assets located in the major centers across Canada, including retail, office, industrial, hotel, multi-residential and seniors housing.
To facilitate an "apples to apples" comparison of tax fairness across the country, the CIPPREC study concentrates on tax ratios: that is, the ratio of commercial taxes per C$100,000 of assessment to the residential rate per C$100,000 of assessment. Toronto's commercial-to-residential tax rate is the worst of Canada's major cities at 4.65. In comparison:
- Toronto's surrounding "905 area code" municipalities of Markham, Pickering, Burlington and Mississauga have commercial-to-residential tax ratios of between 2.4 and 2.5.
- The City of Edmonton is one of the most competitive places for businesses to locate in Canada, with a ratio of 2.15.
- The national average is 2.65.
"Clearly, business properties are disproportionately subsidizing residential," said S. Michael Brooks, Executive Director of CIPPREC, in reference to the fact that businesses in Toronto represent less than 19 per cent of the total assessment base, but pay more than 42 per cent of the property taxes. "We would like to see a plan to bring the City's business to residential property tax ratio in compliance with the provincial bands of fairness within a 5-year timeframe."
In spite of homeowner reactions to rising taxes, CIPPREC alleges that Toronto's residential ratepayers pay one of the lowest property taxes per C$100,000 of assessment in Canada. Although homeowners represent almost 70 per cent of the total assessment base for the City of Toronto, they contribute only slightly more than 35 per cent of the City's property tax budget.
This economic imbalance is not unique to Toronto. Vancouver ranks as the second worst Canadian city in terms of commercial-to-residential rates at 4.34. Businesses pay almost 50 per cent of the total tax levy, but only account for 24 per cent of the Vancouver assessment base. According to CIPPREC, "the balance has tipped too far and the cities of Toronto and Vancouver rely too much on business taxes. Clearly, current tax practices are unsustainable and have serious consequences for the future competitiveness of Canada's two largest cities."
Research recently released by The Fraser Institute, an independent public policy organization, reveals that British Columbia's property tax regime taxes business property at much higher rates than residential property and is damaging the business climate in many municipalities.
"High property tax rates can be a significant factor for businesses as they decide whether or not to remain in business, or to make new investments," said Dr. Robert L. Bish, Professor Emeritus at the University of Victoria and author of the study titled Property Taxes on Business and Industrial Property in British Columbia.
Since 1984, British Columbia has allowed municipalities discretion in setting property taxes on different classes of property. BC now has nine different classes of property, four of which are business. Reportedly, municipal councils have used this discretion to subsidize low residential rates with relatively high rates on business property.
With the exception of Alberta and Ontario, other provinces collect all business properties into one class and set required or maximum ratios between rates on different property classes. In these provinces, the ratios of business to residential rates are quite small. For example, in Saskatchewan it is 1.4 for commerce and industry and 1.1 for utilities while in Manitoba it is 1.4 for business. By comparison, while the median 2003 residential tax rate in BC was 1.2 percent, the rate was 4.9 percent for major industry, 4.6 for utilities, 2.9 for light industry and 2.3 for business.
"Both municipal discretion and a favourable business climate are desirable objectives, but the current system has not achieved a proper balance in many B.C. municipalities," said Bish. "One option is to follow Ontario's reforms which allows municipal discretion in rate setting but limits the municipalities' ability to use business property classes to subsidize residential taxes."
Since Toronto business is taxed above Ontario's "ranges of fairness," emulating this province may not be the best approach for Vancouver business.