Canadian Commercial Property Sector Hit by Outdated Assessments and Rising Tax Burden

November 3, 2021 9:00 AM EDT

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TORONTO, Nov. 03, 2021 (GLOBE NEWSWIRE) -- 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 The research found that the market value assessments in some cities are severely delayed and outdated, and that the commercial-to-residential tax ratio is up by 3.0% compared to 2020, meaning a greater tax burden for businesses in those cities.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 The result is that tax decisions will be based on data that is up to eight years out of date and which does not reflect actual market value of properties, increasing the risk of unfair property taxation impacting Canadian businesses.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
City20212020% Change
2020 to 2021
Vancouver
Calgary
Edmonton
3.41
2.78
2.52
2.30
2.58
2.38
48.28%
7.84%
5.71%
Average2.732.652.99%
Montreal
Quebec City
Winnipeg
Halifax
Ottawa
Toronto
Saskatoon
Regina
4.17
3.47
1.93
2.85
2.37
3.44
1.61
1.51
4.11
3.47
1.94
2.88
2.46
3.62
1.72
1.74
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 Limited
Elizabeth Lambe
Senior Manager, Global Communications
416-641-9787
elizabeth.lambe@altusgroup.com




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