How are property tax rates calculated and what do they pay for?

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Toronto city staff put forth a proposed $17-billion operating budget Wednesday, with a suggestion for an average increase in property taxes of 10.5 per cent for the city’s homeowners.

The city lists rising inflation, increased interest rates, cost escalations, pandemic impacts, rising shelter costs and delivery of provincial and federal services as some of the contributors to its fiscal challenges.

As Oliver Moore reports, Canadian cities have long struggled with the diverse range of responsibilities they’re expected to offer. “In spite of their growing mandate, cities remain largely reliant on property taxes, leading to upward pressure across the country and prompting repeated calls for diversified sources of municipal revenue.”

Because municipalities are not allowed to run deficits in their operating budgets, the residential tax rate is one of the only ways they can address their spending needs.

But what exactly is the property-tax rate, how is it calculated and what is it for? Here’s everything you need to know:

What are property taxes?

Property taxes are the taxes homeowners in Canada pay on the assessed value of their home. The money is paid to the city or municipality that they live in, acting as revenue. They currently vary from 0.5 per cent to 2.5 per cent of a home’s assessed value.

What is the property-tax rate?

The property-tax rate is a proportion of the assessed value of a home that is paid to the city or municipality annually. The rate is set yearly, based on the estimated cost of the operating and capital budgets required to run a municipality, and voted on by elected officials.

The rate is not always the same for every homeowner in a municipality. In Toronto, for example, the rate is different for people who live in residential, multiresidential or new multiresidential areas. In Halifax Regional Municipality, proximity to public transit affects your rate, as well as if your area is categorized as urban, suburban or rural.

What do property taxes pay for?

Property taxes pay for services offered by municipalities. This includes but is not limited to: policing, firefighting, parks and recreation, libraries, road infrastructure (fixing potholes, replacing sidewalks, installing bike lanes), water services, waste collection and snow clearing. In Toronto, large added costs to its operating budget are transit and shelter services. Other governments also contribute to these.

Cities generally have two kinds of spending, operational and capital. Operational spending is for general upkeep and offering of services. Capital spending is for large projects such as new buildings, substantial road or transit infrastructure or significant upkeep of older buildings. A common metaphor for understanding the difference between capital and operating budgets is that you would pay for home heating and water out of your operational budget, and pay for a new roof out of the capital budget.

Toronto’s planned operational budget for 2024 is $17-billion, and its capital budget is $49.8-billion. The costs to run the city are paid for by residential property taxes and commercial taxes, with some funding from provincial and federal governments and other streams.

How are property taxes different from provincial and federal taxes?

The federal and provincial governments are in part funded by taxes on wages and taxes on goods and services. Depending on the jurisdiction, these governments rely on this money to provide services such as health care, education, provincial parks, natural resources, highways and oversee defence, citizenship and immigration, foreign affairs, trade and commerce, and criminal law, among other things.

A goods and services tax of 5 per cent is charged on purchases in Alberta, British Columbia, Manitoba, Northwest Territories, Nunavut, Quebec, Saskatchewan, and Yukon. Apart from Alberta, which doesn’t have a provincial sales tax, these provinces and territories add a Provincial Sales Tax on top of the GST. In Ontario, there is a Harmonized Sales Tax of 13 per cent, which combines tax for the provincial and federal government. In New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island, the HST is 15 per cent.

These rates experience much less fluctuation than municipal residential tax rates, and are used as revenue to fund respective budgets.

How is my property tax bill calculated?

Across Canada, the property tax you pay is calculated by multiplying the set tax rate by your residence’s assessed value. Some provinces and cities add additional costs to the rate paid.

In Toronto, property-tax bills are calculated by multiplying the total tax rate by a property’s assessed value. The total tax rate includes the city rate, the city building fund levy and the education tax rate (which is set by the provincial government).

Toronto’s tax rate for 2023 was 0.66 per cent, which included the city’s tax rate and building fund, and 0.15 per cent for the education tax rate. In 2023, smaller cities tended to have the highest tax rates such as Waterloo, Ont., at 1.20 per cent, and Sault Ste-Marie, Ont. at 1.72 per cent. Vancouver had the lowest rate at 0.29 per cent.

What is the value of my home for municipal tax purposes?

The Municipal Property Assessment Corporation (MPAC) in Ontario determines the assessed value of properties every four years. The last provincewide update took place in 2016. Because of the COVID-19 pandemic, the scheduled 2020 update was postponed, and in 2021, the province postponed the assessment once more, deciding that property assessments for the 2023 and 2024 years would continue to be based on the 2016 value. This means that property-tax rates for this year continue to be assessed at a home’s 2016 value.

Editor’s note: A previous version of this article included a reference to Winnipeg's property tax rate. That reference has been removed because it is not directly comparable to other cities.