Commercial property taxes a heavy burden on small business in Canada's biggest cities
Imbalances in how commercial and residential taxes are being applied in Canada’s big cities are making it harder for small businesses to stay afloat, a new report by Altus Group suggests.
“Residents vote, businesses don’t,” said Phil Gertsman, an executive vice-president, British Columbia and national initiatives, with the real estate data company. He said political decisions on tax rates seem to reflect that saying.
Altus Group recently published its latest Canadian Property Tax Rate Benchmark Report, which provides details on commercial and residential property tax rates in 11 major Canadian cities.
Property tax is the main source of revenue for Canadian cities and towns. The rates that commercial property and homeowners pay often differ and depend on the decisions of tax authorities. Those choices often get political, with commercial owners — or their tenants — usually paying more, Gertsman said.
The report reveals that commercial property taxes are more than double that of residential rates in eight of the 11 cities surveyed.
“I don’t know if there is an ideal (tax ratio), and that doesn’t really tell the full story because the full story is told by the level of taxes actually paid,” he told Postmedia in an interview Tuesday. “The tax rate is a function of how valuable real estate is, so if real estate doubles in price, then that is going to dramatically impact the tax rate.”
However, the consequences of soaring higher commercial values in cities like Toronto and Vancouver mean that small business are struggling to keep up with their property taxes. “That’s really … making dramatic changes to the types of businesses that can survive,” he said.
“It changes the nature of those communities, and the employment that takes place there just becomes more challenging,” he said.
Here are the five Canadian cities with the highest commercial-to-residential property tax ratios and their property tax rates (per $1,000 of property value), according to Altus Group’s findings.
Commercial-to-residential ratio: 3.31-1; Commercial tax rate in 2019: $22.02 per $1,000 of value
Over the past two years, Calgary has experienced the largest ratio increase of all 11 cities on the Altus Group report, at 8.31%. Calgary, which continues to deal with a glut of unoccupied downtown office space amid a down energy market, also saw the largest increase in commercial tax rates for the fourth year in a row, jumping by 13.36% in 2019, the report said. That represents a 55% overall increase in the city’s commercial tax rate over the past four years.
4. QUEBEC CITY
Quebec City’s commercial-to-residential tax ratio has been climbing for 15 years, the report said. While the tax ratio fell by 3.75% in 2019, Quebec City still landed at fourth place on the list and also had one of the highest commercial tax burdens in the country.
While there has been a distinct softening in the residential property market, the city’s commercial sector has continued its lengthy bull run, especially in the industrial and office markets. For the first time in 20 years, Vancouver posted a commercial-to-residential tax ratio below 4-1, with a decrease of 17.17%, the report showed. That drop represents the largest decline of all 11 cities surveyed. That dip is due to a sharp decrease in the commercial tax rate of 14.05%, combined with a modest increase of 3.76% in the residential tax rate.
Toronto this year continued its 11-year trend of dropping commercial rates with a reduction of 5.29%. But Canada’s economic engine maintained the second-highest commercial-to-residential tax ratio on Altus Group’s list.
Montreal’s commercial-to-residential tax ratio has been above the Canadian average for the past 11 years and now sits at just under 4-1. The city also has the highest overall commercial tax burden on the list at just under $38 per $1,000 of property value.