Mayor Tory has stated that new revenue tools alone will not solve Toronto’s financial woes, and that the Province and the Feds need to step up. That is true. We need a new deal for cities. But the City needs to do its part as well, and leaving revenue tools off the table is fiscally irresponsible. In this post we discuss a few options the City has.
Raise property taxes
Property taxes are an important way for the City of Toronto to raise funds to pay for programs, services, and infrastructure that we need to make a great city. In 2023, the City will raise $4.91 billion through property taxes, including residential, multi-residential, commercial, and industrial property taxes. Property taxes account for 30.4% of the City’s $16.16 billion tax- and rate-supported operating budget. For each 1% increase to property taxes, the City raises about $35 million to maintain services and build a better city.
Let’s bust a couple of myths about property taxes in Toronto.
Myth: Toronto’s property taxes are high.
A recent comparison of 35 Ontario municipalities found Toronto had the lowest property tax rate. This year’s budget includes a higher property tax increase than usual — a 5.5% residential property tax increase.
That sounds like a lot. Is it?
- The increase is less than $20 a month* for the average homeowner.
- For older adults and people with disabilities with lower incomes, the City of Toronto has programs to cancel or defer property tax increases.
- The 5.5% property tax increase is still below Toronto’s rate of inflation at 6.6%.
- Property taxes are based on the assessed value of a home. The value of properties are usually assessed every four years, but the assessment process has been put on hold due to the pandemic. That means property taxes are still based on the fully phased-in 2016 assessment[1] of homes. So while homes have increased in value since 2016, property taxes don’t yet reflect that.
- Under provincial law, the City is only allowed to apply a single property tax rate for each property tax subclass. For example, there’s one rate for all residential properties, regardless of how much the home is worth. So a small home is taxed at the same rate as a mansion.
Some advocates have recommended progressive property taxes, with higher property tax rates for more expensive homes and lower rates for more modest ones. That’s a change worth exploring.
Toronto City Council has kept property tax increases below the rate of inflation for years. Unfortunately, the cost of a low property tax is inadequate funds to pay for needed programs, services, and infrastructure. Our crumbling city shows the cost of this policy decision.
* For the average home, assessed at $695,268. The total increase for the average property tax bill is $233 per year ($183/5.5% property tax increase + $50/1.5% increase to the City Building Fund, dedicated to pay for transit and housing). Including this increase the average property tax bill will be $3,569 for 2023, under $300 a month.
Myth: Renters don’t pay property taxes.
Tenants do pay property taxes. They don’t pay directly to the City, but a portion of the rent they pay to their landlord goes to property taxes.
Did you know?
The property tax rate for apartments, referred to as multi-residential properties, is nearly double that of single residential properties. To narrow this gap, the provincial government limits the tax increase for multi-residential properties. In the 2023 budget, the property tax increase for multi-residential properties is 2.75%, or half of the residential increase.
Toronto’s residential property tax rate remains the lowest in Ontario. Property taxes can’t pay for everything the city needs, but they are an essential revenue source. The current budget proposal, with a modest increase to taxes, will result in only a modest increase in revenue.
Tax commercial parking
TTCRiders and TEA have launched a campaign proposing that the City study implementing a tax on commercial parking lots such as those at large malls in order to fund transit and climate initiatives.
A 2016 KPMG report estimated that such a tax could raise $131 to $535 million a year. A 2021 City staff report estimated revenues of $191 to $575 million a year. Based on those studies and assuming a $1.50 per day, per parking spot tax, TTCRiders says the City could have raised as much as $2.8 billion if they had implemented the commercial parking levy when it was first examined in 2016.
Mayor Tory doesn’t support the tax, and the 2023 budget proposes both a fare increase and transit cuts that will affect the most vulnerable.
Tax luxury and vacant homes
The City has other options for raising revenues. ACORN, Daily Bread Food Bank, and SPT have advocated for a luxury homes tax. ACORN’s proposal for a mansion tax calls for the Municipal Land Transfer Tax to be increased from 2.5% to 3.5% for expensive homes. In 2021, the City of Toronto calculated that a 1 percentage point increase to the MLTT would raise $6.35 million if applied to homes worth $3 million or more and $18.68 million if applied to homes worth $2 million or more, based on 2021 home sales projections. Despite deep inequality in the city, a majority of Council in previous terms has not supported the idea.
The City of Toronto can also do better through its recently introduced Vacant Home Tax. This tax is intended to encourage owners to either rent or sell their vacant housing. It’s not right to have vacant homes, particularly in the midst of a housing crisis. Despite community calls to start the tax at 3% of the assessed value of the home, City Council was only willing to set it at 1%. Vancouver is leading the way on the vacant home tax front. It has an Empty Homes Tax which was just raised to 5% of assessed value. Vancouver City Council decided to increase their tax because lower rates were found to be less effective.
Revenues from Vancouver’s Empty Homes Tax have supported:
- the Community Housing Incentive Program (CHIP), which “provides non-profit housing providers with grants to deepen the level of affordability of social and co-op housing projects…Each grant provides a capital contribution towards the development of non-profit or co-op housing projects, resulting in deeper affordability”; and
- land acquisition and development opportunities for affordable housing.
Of note, the Empty Homes Tax has helped to create affordable housing for individuals in deep poverty — an urgent need in Toronto.
While vacant home taxes are not primarily intended as a revenue tool (they are meant to get units occupied), these taxes do raise funds to create more affordable housing. Toronto City staff estimate the Vacant Home Tax at 1% will raise $41 million in 2023. A higher tax rate would raise more funds that are desperately needed for affordable housing while also creating a more effective tool for ending the problem of vacant homes.
Toronto has followed Vancouver’s lead with the creation of the Vacant Homes Tax. Now, it needs to do so again, charging a higher rate for vacant homes that will strengthen the policy and increase revenue for affordable housing.
Implement a city or regional sales tax
Other proposals include the development of a City of Toronto or GTHA regional sales tax. In 2019, the Canadian Centre for Policy Alternatives (CCPA) calculated that a 2% regional sales tax could raise $2.5 billion for local municipalities, including over a billion for the City of Toronto. The CCPA proposed an increase to the Ontario sales tax credit to greatly reduce the burden on low-income residents, while increasing the responsibility on individuals with the highest income.
We need a new deal for cities, but in the meantime...
Municipalities have advocated for better funding arrangements with provincial and federal governments that recognize the roles and responsibilities of cities to its residents. It’s time for a new deal for cities.
At the same time, Toronto City Council can do better for its residents by using the revenue tools at its disposal. Any way you slice it, massive annual budget shortfalls are not sustainable.
1. The City assessed homes in 2016, and gradually phased in the property tax on the new values, i.e., taxes in 2017 are based on 25% of the increase, 50% in 2018, 75% in 2019, and 100% in 2020. See (under “Your Property Assessment Notice”) https://www.toronto.ca/services-payments/property-taxes-utilities/property-tax/property-assessment-and-appeals/