No one ever thought twice about buying a family home in Canada because of taxes.
If you use the principal residence exemption, you pay no tax on the profit when you sell a home for more than you paid. Property taxes must be paid while you own, but no one understands better than homeowners how important it is to maintain a city’s infrastructure.
Now, property taxes are going rogue. In cities across the country, property tax hikes for 2024 are being set at double the inflation rate or more. The proposed 10.5 per cent increase in Toronto is only a mild outlier – Halifax, Calgary and Vancouver are not far behind.
These increases have unexpectedly inserted property taxes into the conversation around the affordability of owning a home. It’s no longer just expensive prices, high mortgage rates and inflation in the broader economy – the cost to homeowners of keeping their city running is a factor, too.
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Property taxes are fairly complex, so it’s hard to generalize about how much the increase coming this year will cost in dollars. Cities set a tax rate that is applied against the assessed value of a home. In Toronto, where values are high, the proposed increase for this year could roughly cost $500 to $1,000 or more per year.
Higher property taxes will also have a marginal effect on how much house people can afford when buying. A calculation used to qualify mortgage borrowers compares their gross income against their mortgage payments plus property taxes and heating. Paying a little more for property taxes cuts into the amount they’ll be allowed to borrow.
If you own a home in 2024, rising property taxes would reduce your disposable income at a time when it’s under pressure in all directions. Mortgage payments have gone up for some homeowners already, while others will experience this when they renew in 2024 or 2025. Food prices keep rising at faster rates than the overall inflation rate, which itself remains too high.
A quick coast-to-coast survey of what’s happening with property taxes beyond Toronto:
- Halifax: A 9.7-per-cent increase has been proposed
- Montreal: Up an average 4.9 per cent
- Ottawa: A 2.5-per-cent increase
- Winnipeg: A proposed increase of 3.5 per cent
- Saskatoon: An increase of 6.04 per cent
- Calgary: An increase of 7.8 per cent
- Vancouver: An increase of 7.5 per cent that follows last year’s 10.7-per-cent hike
The big tax worry with housing until recently was that the federal government would scale back or eliminate the principal residence exemption. In the last two federal elections, the Conservatives accused the Liberals of planning to remove this tax exemption, and the Liberals denied it. They did, however, introduce an anti-flipping tax last year that taxes gains on houses owned for less than 365 days.
With property taxes, there are two aspects that homeowners need to be aware of. One is the tax rate applied by their city government, and the other is the assessed value of their home. In Ontario, assessed values will remain at 2016 values for the current year.
An update of these values was planned a few years ago but postponed as a result of the pandemic. When the numbers are updated, expect them to come in at higher levels. The city will have to adjust its tax rate to ensure these higher values don’t result in another big jump in property tax.
The actual rate of tax on property values varies widely between cities and provinces. The real estate website Zoocasa says Vancouver had the cheapest property tax rate on a list of 25 cities last year at 0.27807 per cent, while Montreal was at 0.5305, Calgary at 0.65718 per cent and Toronto at 0.666274 per cent.
The high end on taxes was found mainly in smaller cities like Waterloo, Ont., at 1.204175 per cent, and Saint John, at 1.62 per cent
While they’re the two most expensive cities for home prices, Toronto and Vancouver have among the lowest property tax rates in the country. Based on recent trends in both locations, that property tax advantage is going to decline. So will affordability for people who live and own homes in those cities.
Editor’s note: A previous version of this article included a reference to Winnipeg's property tax rate. That reference has been removed because it is not directly comparable to other cities.
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Rob Carrick