Canadian Commercial Real Estate Sector Affected by Outdated Appraisals and Growing Tax Burden
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TORONTO, Nov. 03, 2021 (GLOBE NEWSWIRE) – Altus Group Limited (ʺGroupe Altusʺ) (TSX: AIF), a leading provider of commercial real estate services (“CRE”), software and data solutions, in partnership with the The Real Property Association of Canada (“REALPAC”), today released its Landmark Report on Property Tax Rates in Canada 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 examined two variables that affect property tax rates – property market value assessments, which are performed by provincial governments, and the commercial-to-residential tax ratio. Research has found that market value assessments in some cities are severely delayed and out of date, and the commercial-to-residential tax ratio is up 3.0% from 2020, which means a higher tax burden. important for businesses in these cities.
Real estate market value assessments
There is a large variation in market value appraisals of properties across Canada due to lags between appraisal dates, different cycle times and, in some cases, re-appraisal delays. The result is that tax rulings will be based on data that is up to eight years old and does not reflect the real market value of properties, increasing the risk of unfair property taxes impacting Canadian businesses.
Commercial-residential tax ratio
The Commercial-Residential Tax Ratio analyzes the different tax rates between commercial and residential properties, which is done by comparing the commercial tax rate to the residential tax rate. For example, if the ratio is 2.50, that means the business tax rate is two and a half (2.5x) the residential tax rate.
The 2021 report found that seven of the 11 cities studied have a commercial tax rate that is more than double the residential tax rate, meaning that a commercial property would incur property taxes more than double the amount of. residential property of equal value, resulting in a negative impact on commercial enterprises in these 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 due to a significant increase in the Vancouver ratio. which rose 48.3% to 3.41 in 2021, due to the reversal of the commercial school tax reduction implemented by the province for 2020, in response to the economic circumstances brought on by the pandemic.
In addition, Calgary’s ratio increased 7.8% to 2.78 and Edmonton’s increased 5.7% to 2.52. Both cities have seen reductions in their non-residential valuation bases due to the economic impact of the pandemic, leading to higher commercial tax rates while residential rates have increased to a lesser rate or fallen. Saskatoon and Regina posted some of the lowest rates at 1.61 and 1.51 respectively.
|Year-over-year commercial-to-residential tax ratios|
2020 to 2021
“So many cities are behind on property assessments, and it’s a big deal that some assessments are on the verge of being eight years out of date,” said Terry Bishop, President of Property Tax Canada at Altus Group. “While it’s disappointing to see the average commercial-to-residential tax ratio in Canada also rise in Canada, given the extraordinary pressures on business over the past 18 months, it has been driven by a colossal increase in a city due to a reversal of a tax cut, as well as gradual increases seen in three other cities. It is promising to see that the majority of cities in Canada have seen a reduction in this ratio, with places like Saskatoon and Regina seeing substantial declines. Canadian governments must prioritize lowering these rates and updating their property assessments to reduce inequalities and better support existing businesses and job growth.
Commercial and residential rates
The average commercial property taxes estimated per $ 1,000 of assessment among the cities surveyed was $ 23.88, which represents a slight increase of 1.3% between 2020 and 2021. Montreal, Quebec and Halifax continued to increase. Post the highest estimated commercial tax rates for the eleventh consecutive year, meanwhile, Vancouver posted the lowest rates at just under $ 10.00. The average residential tax rate increased 1.9% in 2021, with estimated average residential property taxes per $ 1,000 of assessment among surveyed cities increasing slightly to $ 9.15, from $ 8.97 in 2020. Low residential rates are a key factor in 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:
- VancouverThe city’s ratio started declining in 2017 to an all-time low of 2.30 in 2020, but the reversal in 2021 of the 2020 provincial school tax cut bounced the city’s ratio back to 3.41 . Vancouver is back well above the average ratio.
- CalgaryDowntown office buildings continue to struggle, leading to a decline in the non-residential tax base. With rising commercial tax rates and a declining residential tax rate, Calgary is returning to the trend of an upward commercial-to-residential ratio now standing above the survey average of 2.78.
- Montreal continued a three-year trend of posting the highest commercial-to-residential ratio, currently 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 above 4: 1. The ratio first exceeded the survey average in 2008 and has been rising steadily since, increasing by 16 over the past 18 years.
- Quebec city first climbed above average in 2013 and remains well above average in 2021 with a ratio of 3.47.
- Halifax saw a slight decline in commercial rates and a smaller decline in residential rates, which resulted in the ratio falling from 0.79% to 2.85.
- Edmonton saw the city’s ratio increase by 5.7% in 2021 but remains just below average with a ratio of 2.52.
- Ottawa has been slowly declining since 2017 and now shows a ratio of 2.37.
- Toronto continued its 17-year trend of lowering its ratio. This is in line with the City’s strategy to improve the business climate by reducing tax rates on commercial, industrial and multi-residential properties to target 2.5 times the residential tax rate. The City expects to meet this target tax ratio by 2023, however, commercial rates will need to fall further if Toronto is to meet this target ratio.
- Winnipeg saw a slight decrease in commercial rates and a simultaneous increase in residential rates, which caused the ratio to drop 0.6% to 1.93.
- Saskatoon and Regina ratios declined in 2021 by 6.3% and 13.4%, respectively, after remaining relatively stable from 2017 to 2020.
A copy of the Altus Group 2021 Canadian Property Tax Rate Benchmark Report can be downloaded from: https://www.altusgroup.com/featured-insights/canadian-property-tax-benchmark-report-2021
About Altus Group Limited
Altus Group Limited is a leading provider of independent software, data solutions and 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 technological capabilities. Our solutions enable clients to analyze, better understand and recognize the value of their real estate investments. Based in Canada, we have approximately 2,600 employees worldwide, with operations in North America, Europe and Asia-Pacific. Our clients include some of the world’s largest players in the real estate industry. 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 the Altus Group, please visit: www.altusgroup.com.
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