August 30th 2021
The State of Property Taxes in Toronto
By Jaswantee Ravi
When most Torontonians think about the local housing market, they’re filled with uncertainty. Home prices have increased 10% within the past year alone (the average cost of a place in the city now exceeds $1 million) leaving many would-be homebuyers feeling stuck. But while the market here is less than ideal, property taxes in Toronto are also the lowest in all of Ontario for a population our size.
Property tax affects many integral city services, including public transit, fire departments, police, security, and schools. It’s complex and touches so many different parts of a community, so it makes sense that most Canadians know very little about how property tax works. For those of you who need a refresher, below we’re talking all about the state of property taxes in Toronto.
How is property tax calculated — and who pays it?
All property owners have to pay property tax (it’s the law in Canada), which is calculated based on the estimated value of their property.
When you pay property tax, government and city services receive money to fund their operations — and typically, they can have more impact in an area if the property tax there is high.
The Municipal Property Assessment Corporation (MPAC) calculates the property tax every four years by multiplying the current year's property assessment value with the respective city council's approved tax rate. The education tax rate and city-building fund levy make up the city's agreed tax rate, which can be found here.
Property tax consists of two main parts: a municipal tax that varies based on where a property is located and an education tax that’s the same throughout the province. Some cities require higher property tax to allow more services to function, like extensive public transit options or housing projects. The downside is that if the property tax is high, less people can afford to live there. However, Toronto has the lowest property taxes of any municipality with a population over 10,000 people (the final tax rate is 0.599704%).
To put this into perspective, a first-time homeowner in Windsor, Ontario, would pay roughly $9,000 each year in property taxes, while a first-time homeowner in Toronto would only pay $3,000. This means many people are still interested in buying homes in Toronto because they can potentially save thousands of dollars every year on taxes.
Not everyone can take advantage of Toronto’s low property taxes, though.
The property tax in Toronto is so low because high-value homes combined with a large population make it easier to keep the tax rate down. Basically, the City of Toronto can collect more than enough money by charging a lower rate to its massive homeowning population — a large percentage of which own expensive properties. This is excellent news for people who can afford to buy a home in Toronto, but most people can’t. The cost of most Toronto houses keeps upper-middle through lower-class Canadians from taking advantage of these tax savings.
Individuals also might have a different tax rate depending on the type of property they own. For example, a homeowner buying a condo pays less property tax but more maintenance fees than someone living in a detached house. Another variable is when you bought your property, since new homebuyers who need to pay property tax are charged a setup fee for their account that totals around $60.
It's not just individuals who pay fees, either. If a business or corporation buys a property and pays taxes, their fees depend on what kind of business or services they provide. Therefore, limitations on annual property tax increase for specific companies and multi-residential properties. Companies are also given different property taxes and have recently had tax capping added to their yearly adjustments. Businesses have also been given a tax rate reduction due to COVID-19 restrictions, totaling a reduction that is 2.5 times more than residential tax rates.
What's the overall state?
The overall state of Toronto property tax is good for businesses trying to cut costs in the wake of COVID-19, but not so great for new homeowners trying to break into the market. With government reductions and capping implemented for businesses and commercial buildings, struggling smaller companies can take advantage of Toronto's low property tax benefits.
For Toronto's house-hunters, the picture is a little bleaker. With housing options few and unaffordable, getting into the market to receive low property tax benefits is a struggle. And on top of that, many people have a hard time fully understanding Toronto property taxes and real estate fees. Luckily, they all have access to the city of Toronto's property tax calculator, which helps break down how your home is affected by property taxes.
It is not all doom and gloom for Toronto's house-hunters. More and more resources like Properly help Canadian homeowners deal with the trials and tribulations of buying property in Toronto.
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