Canadian Commercial Property Sector Hit by Outdated Assessments and Rising Tax Burden
03 November 2021 - 02:00PM
Altus Group Limited (ʺAltus Groupʺ) (TSX: AIF), a leading provider
of commercial real estate (“CRE”) services, software, and data
solutions, in partnership with the Real Property Association of
Canada (“REALPAC”), has today released their Canadian Property Tax
Rate Benchmark Report for 2021 which provides an in-depth look at
commercial and residential property tax rates in 11 cities across
Canada, and reveals that some cities are potentially exposed to an
unfair property tax system.
The report looked at two variables which affect property tax
rates – property market value assessments, which are carried out by
Provincial governments, and the commercial-to-residential tax
ratio. The research found that the market value assessments in some
cities are severely delayed and outdated, and that the
commercial-to-residential tax ratio is up by 3.0% compared to 2020,
meaning a greater tax burden for businesses in those cities.
Market value property assessments
There is a large variation in market value property assessments
across Canada due to valuation date lags, differing cycle lengths
and, in some cases, delays of reassessments. The result is that tax
decisions will be based on data that is up to eight years out of
date and which does not reflect actual market value of properties,
increasing the risk of unfair property taxation impacting Canadian
businesses.
Commercial-to-residential tax ratio
The commercial-to-residential tax ratio analyzes the differing
tax rates between commercial and residential properties, which is
done by comparing the commercial tax rate versus 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 2021 report found that seven out of the 11 cities surveyed
have a commercial tax rate which is more than double the
residential tax rate, which means that a commercial property would
incur property taxes more than twice the amount of an equally
valued residential property, resulting in a negative impact for
commercial businesses in those cities.
The report shows that the average commercial-to-residential tax
ratio in Canada is 2.73, up 3.0% from 2.65 in 2020. This is in part
driven by a significant increase in Vancouver’s ratio which rose
48.3% to 3.41 in 2021, due to the reversal of the commercial
Education Tax reduction implemented by the province for 2020, in
response to the economic circumstances driven by the pandemic.
In addition, Calgary’s ratio increased by 7.8% to 2.78 and
Edmonton’s ratio rose by 5.7% to 2.52. Both cities experienced
reductions in their non-residential assessment bases as a result of
the economic impact of the pandemic, leading to increases in the
commercial tax rates whilst the residential rates either increased
at a lesser rate or decreased. Saskatoon and Regina posted some of
the lowest rates at 1.61 and 1.51 respectively.
Year-Over-Year Commercial-to-Residential Tax
Ratios |
City |
2021 |
2020 |
% Change 2020 to 2021 |
VancouverCalgaryEdmonton |
3.412.782.52 |
2.302.582.38 |
48.28%7.84%5.71% |
Average |
2.73 |
2.65 |
2.99% |
MontrealQuebec
CityWinnipegHalifaxOttawaTorontoSaskatoonRegina |
4.173.471.932.852.373.441.611.51 |
4.113.471.942.882.463.621.721.74 |
1.49%0.00%-0.61%-0.79%-3.36%-4.98%-6.29%-13.42% |
“So many cities are behind when it comes to property
assessments, and it’s a big issue that some assessments are on
track to be eight years outdated,” said Terry Bishop, President of
Property Tax Canada at Altus Group. “While it is disappointing to
also see the average commercial-to-residential tax ratio rise in
Canada, given the extraordinary pressure businesses have
experienced over the last 18 months, it has been driven by a
colossal increase in one city due to a reversal of a tax reduction,
along with incremental increases seen in three other cities. It’s
promising to see that the majority of cities in Canada have seen a
reduction of this ratio, with places such as Saskatoon and Regina
seeing substantial decreases. Canadian governments need to
prioritize pushing down these rates and bringing their property
assessments up to date in order to decrease inequality and better
support existing businesses and job growth.”
Commercial and residential rates
The average estimated commercial property taxes per $1,000 of
assessment among the cities surveyed was $23.88, representing a
slight increase of 1.3% between 2020 and 2021. Montreal, Quebec
City and Halifax continued to post the highest estimated commercial
tax rates for the eleventh consecutive year, meanwhile Vancouver
posted the lowest rates at just short of $10.00. There was a 1.9%
increase to the average residential tax rate in 2021, with the
average estimated residential property taxes per $1,000 of
assessment among the cities surveyed rising slightly to $9.15,
compared to $8.97 in 2020. Low residential rates are a key factor
in leading to a high commercial-to-residential ratio, and the
cities of Vancouver, Toronto and Calgary posted some of the lowest
rates.
Market-by-market trend
analysis:
- Vancouver’s ratio began trending downward in
2017 to a historic low of 2.30 in 2020, but the 2021 reversal of
the Provincial School Tax reduction of 2020 caused the city’s ratio
to rebound to 3.41. Vancouver returns to sitting well above the
average ratio.
- Calgary’s downtown office properties continue
to struggle, resulting in a shrinking non-residential tax base.
With increasing commercial tax rates and a decreasing residential
tax rate, Calgary returns to the trend of a rising
commercial-to-residential ratio now sitting above the survey
average at 2.78.
- Montreal continued a three-year trend of
posting the highest commercial-to-residential ratio, currently
sitting at 4.17. The city’s ratio rose 1.5% in 2021, marking the
second year in a row to post a commercial-to-residential ratio
exceeding 4:1. The ratio first rose above the survey average in
2008 and has been steadily climbing since, increasing 16 out of the
last 18 years.
- Quebec City first climbed above the average in
2013 and remains well above the average in 2021 with a ratio of
3.47.
- Halifax saw a slight decrease in commercial
rates and a lesser decrease in residential rates, resulting in a
ratio decrease of 0.79% to 2.85.
- Edmonton saw an increase to the city’s ratio
of 5.7% in 2021 but remains just below the average with a ratio of
2.52.
- Ottawa has slowly been decreasing since 2017
and now posts a ratio of 2.37.
- Toronto continued its 17-year trend of
decreasing its ratio. This is consistent with the City’s strategy
to enhance the business climate by reducing tax rates for
commercial, industrial, and multi-residential properties to target
2.5 times that of the residential tax rate. The City expects to
reach this targeted tax ratio by 2023, however, commercial rates
will need to come down more if Toronto is to meet this goal
ratio.
- Winnipeg saw a slight decrease in commercial
rates and a simultaneous increase in residential rates, resulting
in a ratio decrease of 0.6% to 1.93.
- Saskatoon and Regina ratios decreased in 2021
by 6.3% and 13.4%, respectively, after remaining relatively stable
from 2017-2020.
A copy of the Altus Group 2021 Canadian Property Tax Rate
Benchmark Report can be downloaded at:
https://www.altusgroup.com/featured-insights/canadian-property-tax-benchmark-report-2021
About Altus Group Limited
Altus Group Limited is a leading provider of
software, data solutions and independent advisory services to the
global commercial real estate industry. Our businesses, Altus
Analytics and Altus Expert Services, reflect decades of experience,
a range of expertise, and technology-enabled capabilities. Our
solutions empower clients to analyze, gain insight and recognize
value on their real estate investments. Headquartered in Canada, we
have approximately 2,600 employees around the world, with
operations in North America, Europe and Asia Pacific. Our clients
include some of the world’s largest real estate industry
participants. Altus Group pays a quarterly dividend of $0.15 per
share and our shares are traded on the TSX under the symbol
AIF.
For more information on Altus Group, please visit:
www.altusgroup.com.
FOR FURTHER INFORMATION PLEASE CONTACT:
Altus Group LimitedElizabeth
LambeSenior Manager, Global Communications 416-641-9787
elizabeth.lambe@altusgroup.com
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