The Canadian housing market tells different tales depending on the city; property values, and the economic fundamentals that support them, vary based on the municipality or the province in question.
While housing prices can be very diverse, so too can home ownership costs. For instance, the land transfer tax home buyers pay when they close on a property can range by as much as $20,000 depending on the market. An interesting thing to note is that the disparity can similarly be found across the nation according to a study done by Zoocasa, which compared the property tax rates in 25 major municipalities across Canada.
How Property Taxes Are Calculated
Despite each province or municipality having their own formulas to calculate tax, most individuals’ property tax will be calculated based on the following:
- An assessment of the value of their home, which is typically conducted by a provincial authority (for example, Ontario’s Municipal Property Assessment Corporation (MPAC), BC Assessment (BCA), or the Saskatchewan Assessment Agency (SAA)). As well, the frequency of assessments can differ by province; MPAC conducts its valuation assessment on Ontario properties every four years, while BC values are calculated each January. A property value assessment takes many factors into account such as neighbourhood, the age of the home, whether it has received significant updates, the size of the lot, etc.
- A residential rate set by the local tax authority or municipal council. This is established annually based on the municipality’s budget and required expenditures for the year. The proceeds of city property tax are then doled out for a number of services including a provincial school tax, local transit, hospitals, police and emergency services, parks and recreation, etc.
Municipalities Set their Residential Tax Rates
The typical property tax formula for an individual multiplies the municipal residential rate by the assessed value of the home as determined by the province. The resulting tax is then paid directly to the municipality based off of a proportional system where tax owed increases along with home values at a consistent ratio. However, while the province determines the value of the property to be taxed, municipalities have discretion as to how those changed are rolled out.
For example, some owners of Vancouver real estate are protected from taxation shock by Land Assessment Averaging, allowing the city to introduce BCA-mandated tax increases in phases. This reduces the tax burden on homeowners whose homes have skyrocketed in value. The criteria for eligibility is determined by March 31st each year; for 2018, homes that have increased in value by more than 19.62141% may pay at the average tax rate rather than their actual assessed value.
The Impact on Home Buyers’ Budgets
Since property taxes differ between municipalities, buyers need to be aware of how the local tax rate and the appreciation of home values over time, will impact their overall housing affordability. This is especially the case for investors looking to purchase real estate in various cities or towns as they will be paying different taxes depending on the city.
However, a low tax rate doesn’t always mean that you will be paying less taxes. Housing prices must also be considered when determining the actual amount of tax paid. Even cities with very similar property tax rates may not share similar amounts on their property bill.
Toronto Compared to the Rest of Canada
Let’s take a look at Toronto and Calgary, for example. These two cities have very similar property taxes; at 0.63551% and 0.63573%, they are both on the lower end of the property tax spectrum. However, Torontonians on average will pay a higher property tax when compared to Calgary residents. Looking at the downtown areas for both, Toronto houses in August 2018 have an average home price of $831,004, which translates to $5,281 in property taxes. In comparison, Calgary real estate is significantly cheaper, assuming an assessment at the average home price of $483,192 for the month of August 2018; This amounts to $3,071 paid in property taxes for home owners.
Even Vancouver, the city with the some of the most expensive real estate in Canada, falls short of the property taxes required inToronto. At an average house price of $1,083,400, Vancouver home owners will only pay $2,674 —based on a tax rate of 0.24683%— in property taxes.