Commercial real estate owners, battered by higher interest rates, are grappling with another big challenge in Canada: a property tax system that’s increasingly tilted against them, according to a report by Altus Group Ltd.
(Bloomberg) — Commercial real estate owners, battered by higher interest rates, are grappling with another big challenge in Canada: a property tax system that’s increasingly tilted against them, according to a report by Altus Group Ltd.
In several of the country’s largest biggest cities — including Toronto, Montreal and Vancouver — commercial properties are taxed at more than three times the rate of residential ones. The average gap across 11 major cities has widened in the past year, the Canadian real estate data firm said in the study.
In Ontario, the most populous province, the situation is exacerbated by a tax transparency issue because the government suspended new property valuations during the Covid pandemic. Properties are currently taxed based on 2016 values, and it may be years before that’s fixed, Altus said — giving an unfair tax advantage to industrial properties that have seen their values soar since then, compared with office or retail owners.
The tax inequity between commercial and residential is greatest in Montreal, the business and financial capital of Quebec, where commercial real estate is taxed at C$34.51 per C$1,000 of property value, compared with about C$8 per for homes, according to the Altus analysis.
The tax burden is a risk for business growth in Canada, the firm warned. Next to debt payments, property taxes are the highest operating cost for many commercial owners, Altus executive Ryan Fagan said in an interview.
“When you’re dealing with the current economic climate with skyrocketing inflation and interest rates, it’s very important that owners and operators are able to control expenses,” he said.
The Altus report, done in conjunction with the Real Property Association of Canada, said the gap between commercial property tax rates and residential rates has widened over the past 20 years — though the trends differ by region. In Saskatoon and Regina, Saskatchewan’s two largest cities, the relative tax burden for commercial property has fallen.
It’s a common misconception that property reassessments automatically lead to higher taxes, Fagan said. Accurate property valuations mean the burden is shared fairly across a larger base of properties. “The higher the assessment base, the lower tax rate needed to raise the same amount of tax,” the report says.
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