City of Toronto Property Tax Rates for
Multi-Residential rental housing buildings

A letter on the higher City of Toronto property tax rates for multi-unit residential apartments of 7 units and more.

Financial Policy & Research Services
City of Toronto Finance Department
City Hall, 5th Floor, East Tower
100 Queen Street West
Toronto, ON, M5H 2N2

August 31, 2004

Discriminatory City of Toronto property tax policies against tenants in apartments (multi-residential tax rates)

There is a need to look at serious problems for residents related to the ever decreasing supply of affordable rental housing, and increased poverty and homelessness, not just from the financial perspective but also the social, to ensure an affordable and civil society.

An important factor affecting the affordability of housing, is municipal property tax rates.

The January 7, 2004, City of Toronto, Staff Report, to the Policy and Finance Committee, from the Chief Financial Officer and Treasurer, complains about the 5% provincial cap on multi-residential (apartment) tax increases if due to Current Value Assessment, (CVA,) and recommends getting part of their projected shortfall by withholding property tax decreases from this same class of property, (report p.18).

The City has supported removing the tax limitations imposed by Bill 140, the Continued Protection for Property Taxpayers Act 2000, that kick in because of Toronto's high provincial tax threshold ratio, including on multi-residential property, (that is, apartments).

While the City is looking at ways to increase taxes on tenants for revenue reasons, they instead need to be looking at the social consequences of these recommendations and finding ways of decreasing tenant taxes in such a way that the money returned is assured of ending up in tenants pockets.

Tax Ratio:

"Tax Ratio" is the commonly used ratio by governments for municipal property tax rates for various classes of property in relationship to the rate paid for "residential" property, excluding the education portion which is set by the province and not by the city or town.

Ontario, under the Municipal Act, has set a Provincial "threshold ratio" that is the average of the rates within Ontario, which for multi-residential is 2.74. This is only an average and is not deemed to be a measure of fairness of taxation, though it is used under that 2000 Act, to set limits in property tax increases due to CVA.

The ratios in 2004 for the largest cities in Ontario are: Toronto 3.762; Ottawa 2.134 (Zone A) and 2.189 (Zone B); Hamilton 2.740, London 2.224 and Kitchener 2.580, with Toronto clearly exceeding the ratio of all the other major municipalities.

Tenant versus homeowner income (ability to pay):

The March 2001 Statistics Canada study, The Assets and Debts of Canadians, revealed that in 1999 for Toronto (Census Metropolitan Area) the average household income of homeowners was $53,563, double the $27,039 of renter households, and that the median net worth was $248,400 for home owers versus only $3,300 for renters.

The maps in the report, Social Indicators and Priority Areas, by the City of Toronto, Urban Planning and Development Services, show the correlation between areas with high levels of poverty and high level of tenant households.

Discriminatory attitudes towards multiple unit dwelling renters:

One only has to look to the June 21, 2004, City of Toronto Staff report, to the Policy and Finance Committee, from the City's Chief Financial Officer and Treasurer, Property Tax Policies for 2005 and Beyond, Consultative Framework, to see the common discrimination by all levels of government, when on page 3 it reads: "non-residential property taxes, (commercial, industrial, and multi-residential)".

It is assumed that because rental housing is a business, that higher rates of taxation can be charged, even though those levies are passed on dollar-for-dollar to the tenants under landlord and tenant laws, and even though the majority of tenants are renters because they have lower incomes and can not afford to be homeowners. Of course, since the tax levies are ultimately paid by tenants as part of our rents, most tenants unaware of the real source of any increased taxes, nor that over 20% of our rents are in fact due to municipal property taxes.

If a landlord owns 10 single-family homes for rent, the property taxes are set at the residential rate, but if were instead a 10 unit apartment building for rent, the rate of taxation, which gets passed on to the tenants, is much higher.

Similarly, if there are two physically identical buildings side-by-side, but one is a rental building and the other is a condominium, the rental building would be taxed at the higher "multi-residential" rate and the condo at the lower "residential" rate (once the building was handed over by the developer, to the individual unit owners and their condominium management board).

That same Staff Report, gives plenty of attention to business rates, while avoiding the full implications of higher multi-residential rates. After all, higher taxes, mean higher rents, leading to lower disposable incomes for residential tenants, which affects the health of local retail businesses as well as the whole community.

Anecdotal evidence:

One only has to look at the floor space of the average Toronto apartment which would pay in the range of $2200 a year in property taxes hidden in the rent, to a house in the same area to see on a square footage basis the much higher rate of taxation we tenants pay.

Multi-unit dwellings appear to be of less expense to the City, in regards to garbage pickup, street cleaning and snow removal, leaf pickup, etcetera. I must be far cheaper to take care of these city services for one 200 unit building (as an example,) than for 200 separate single-family homes. So why do those who cost the city less, pay the higher rates of taxation?

Additionally, homeowners pay property taxes directly to the City. So do condominium unit owners. So also, do commercial tenants. But, residential tenants, who have the municipal property taxes passed on to them under provincial law, do not see the amount of taxes they pay, as it is included in the total of their rent. While this latter collection method saves the City money in the collection process, that saving is certainly never passed on by the City, plus residential tenants pay higher rates that other residences.

Pitfalls - the Tenant Protection Act:

Even if municipalities were to implement a policy of tax fairness for tenants to remove the difference in taxation rates, the obstacle preventing reductions from reaching renters is the Tenant Protection Act, Statutes of Ontario.

Under the Tenant Protection Act, (TPA,) there is what is commonly known as Vacancy Decontrol, which is how a landlord is permitted to raise the rent on a rental unit by any amount they wish when a tenant moves out. This means that landlords could easily and legally claw back any property tax reductions meant for tenants merely by raising the rents by that same amount when the tenants move out if they wish, without the new tenant being aware of it.

I am unaware of any statistics available on the rate of turnover of apartments since the implementation of the TPA, and therefore it is impossible to gauge the full financial windfall on a yearly basis to landlords resulting from this Act and any changes to tax policies. This pitfall could be even worse, if the Ontario government were to implement "Regional Decontrol" of rents, something that has been repeated in various trial balloons.

Conclusions:

The increasing unaffordability of rental housing is an issue that is not being adequately addressed by the City of Toronto, and one factor in that is the discriminatory property taxation rates on multi-unit residential housing.

It is very clear that Toronto tenants through our rents pay very disproportionate property tax rates, in spite of the lack of ability to afford it and lacking the security of tenure through the accumulation of financial assets.

In spite of any pitfalls of implementing tax fairness for tenants in Toronto, this does not prevent City Council from passing a public statement of intent as it has done on many issues, such as declaring homelessness a national disaster.

The City should create a plan and City Council should pass such a public statement on tax fairness for renters, making it contingent upon the Province of Ontario reinstating full rent controls so that landlords could not reap windfalls at the expense of tenants. Not to do so is to ignore the plight of the half of City of Toronto residents who live in rented accommodations, and are disproportionately poorer partially due to inequitable municipal taxes.

Robert Levitt