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Toronto Residential Property Taxes to Rise... Without an Increase
29/01/2004

There was a brief article in the Globe and Mail today about residential property taxes in Toronto. The article says -- but doesn't explain well -- that these taxes are going to go up even before there is any tax rate increase in the budget:

The average Toronto homeowner (with a house or condo worth $330,000) faces a $90 increase in property taxes this year -- separate from any budget-driven rise expected this spring -- unless the city can persuade the province to change some tax rules. Yesterday, city council adopted a report that shows residential property taxpayers are on the hook for the extra $90 because of provincial legislation that prevents Toronto from raising taxes on businesses. City budget chief David Soknacki said Toronto has asked for "a substantial change" in the legislation that prevents the city from raising taxes on business owners. Mayor David Miller has promised to keep property tax increases tied to this spring's budget to no more than 3 per cent.

I don't think someone just picking up the newspaper would necessarily understand what this is about, so let me translate. (This was all actually explained in a Toronto Star arcticle a couple weeks ago that I can't find anymore.)

The city collects property taxes on all types of property in the city, but charges different rates depending on the property class (e.g., residential, commercial, industrial). The taxes are based on the value of the property, as assessed by the Muncipal Property Assessment Corportation. This is the way it is across Ontario, ever since the Harris-Eves government brought in current value assessment as the rule for all municipalities.

When the new assessment numbers come in, an adjustment is made to the rates that are charged by the city. This is done to balance out increases in property values. For example, if property values in the city have risen by an average of 12%, then the tax rates are adjusted (by default) to cancel out this increase.

However, this re-adjustment does not affect everyone equally. If the average is 12%, but your house went up by 20%, then there is a tax increase on you, even without a budgetary change. (I.e., the whole thing is revenue-neutral for the government, and just represents a shifting in who pays. Your house now represents a slightly large slice in the pie of total property value.)

Well, the same thing is happening to Toronto home-owners on the whole. Because property values for residences are rising faster than values for other classes of property in the city, they are getting an increase before any budgetary changes. The tax burden is being shifted to home owners as they come to represent a bigger share of the pie of Toronto property value.

In normal circumstances, the city would be free to make changes in the budget to counter-act this effect. They could bring in a budgetary tax increase on commercial and industrial property and lower rates on residences. However, the Province of Ontario (under Harris) enacted a special law called Bill 140 that basically says, "The City of Toronto is not allowed to raise property tax rates on commercial and industrial properties because we think those rates are too high already."

Now, the story was actually worse in the Toronto Star article, because there is another impact that the Globe doesn't even mention.

In Ontario, education is partly funded by property taxes that are collected by the Province and pooled. The Government of Ontario doles out this money to local school boards based on their funding formulas, but it collects these taxes based on property value. And guess what? Toronto residential properties have increased in value faster than properties in the province as a whole. So, while the Toronto District School Board has to work on plans to build condos on school grounds, you get an education tax increase.

So, that's the story of how current value assessment is causing shifts in taxation requiring Toronto homeowners to pay a bigger proportion of the pie.


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