Even After the Latest Increase, Toronto Still Has the Lowest Effective Property Taxes in Ontario. Mississauga Is Ranked 8th.
When looking for a new home, most people consider the number of rooms, the neighbourhood, and the surrounding scenery. They also take into account the price of the property and its potential for appreciation in the future. Things like the amount they’ll pay in property taxes are forgotten or left on the backburner. These kinds of oversights can cost new property owners thousands of dollars a year.
This isn’t an uncommon occurrence because the way residential property tax is calculated can be an opaque process. The tax can fluctuate drastically from one municipality to the next. That doesn’t mean you can’t buy property in prime areas due to high taxes. In fact, Toronto has the lowest Effective Property Tax Rates. Effective Property Tax Rates are annual property taxes calculated as a percentage of the market value of a property rather than the assessed value, which often differs significantly from real property prices.
WOWA has made a calculator using insights from its data analysis that shows the Effective Property Tax Rates for neighbourhoods in Ontario, British Columbia, and more. You can find it at WOWA’s Property Tax Calculator, where you can use the market values of a property to estimate its annual property taxes.
Even after the recent Dec. 4 announcement about Mayor Tory’s plan to raise property taxes in Toronto, the city will still have the lowest taxes in Ontario at least until 2023 as the proposed increases are less than 2% per year and there has to be more than a 7% increase before Toronto’s Effective Property Tax goes over that of the 2nd city in the list, Milton.
Understanding property taxes
Cities or municipalities in Canada and most other developed nations levy a yearly tax on commercial and residential property. This helps them generate funds to keep services such as libraries and emergency services running and initiate new projects beneficial to residents.
The interesting part about property taxes is that they can vary wildly between cities because each one sets its own tax rate. It usually includes an education tax on top of the base rate. In other areas, other taxes may also be bundled together. The Municipal Property Assessment Corporation (MPAC) evaluates the value of all homes in the region every year. The property tax payment is calculated by multiplying the assessed home value and tax rate together.
Real tax rates in Ontario
The assessed value as determined by MPAC is usually very different from the market value of a property. This makes it difficult for a new buyer to determine how much property tax they’ll pay. Even when they have access to the official property tax rate, it’s not as easy to get hold of the MPAC property valuation because it’s only available to the person who currently owns the property. This is where the Effective Property Tax Rate comes in. It allows potential buyers to calculate property tax rates based on market prices.
Wowa embarked on a project to understand the relationship between the real value of properties and the property tax the owners pay. It pulled data that contained the listing prices of 16,000 properties from 54 cities in Ontario. It then cross-referenced the property tax paid on those homes to calculate the Effective Residential Tax rates of the properties. The resulting value is a more accurate way for potential buyers to estimate how much they should expect to pay in property taxes every year.
The final values for the Effective Property Tax rates from the study carried out by Wowa range from 0.4% to 0.86%.
At 0.493%, Mississauga has the 8th lowest rate in the study of more than 50 cities; however, all the cities with a lower Effective Property Tax rate than Mississauga are part of GTA.
|Rank in GTA||City||Effective Rate (%)|
The above data was sourced from Wowa’s comprehensive study of property tax rates of cities in Ontario
The secret to Toronto’s low property tax
Toronto is the largest city in Canada and has the lowest Effective Property Tax rate in Ontario. At first glance, this seems counterintuitive because of all the additional services that Toronto offers in contrast to small townships or municipalities. While the residents of Toronto do get a lot more, it doesn’t take into consideration all the factors that affect the property tax rate in Toronto.
The first thing to note is that the political climate in Toronto didn’t favour tax hikes in recent years. The last few mayors have made it a point to increase taxes at a rate equal to or slightly below inflation. This controlled approach to tax increases was continued until 2020 whereafter a new increase has been proposed to cover the growing costs of transit and affordable housing. Another factor to consider is the density of Toronto.
When it comes to residential property tax, a denser city means that the costs of running services for a certain area is spread across more people. Toronto has 2326 high-rises which is more than London (1,058) and Tokyo (1,259) combined. Toronto has the added advantage of having mostly high-value properties. Cities that are both dense and expensive can set lower tax rates because they get more money from their land compared to spread-out regions that have the high costs of servicing a large area while having fewer property owners to tax. This is good news for potential buyers who want to buy in Toronto and can pass the mortgage stress test. Considering how hot the real estate market is in Toronto, this may be a good thing for buyers hoping to save some money!
The Effective Property Tax rate is an important factor when determining the ongoing costs of living in a home. It may appear high in some areas but that may be because different taxes are bundled together. It’s important to find out what is and isn’t included. In Mississauga, the Effective Property Tax rate is in one of the lowest rates in Ontario but it’s not the best in the GTA so take this into consideration when looking for a property. In the end, the area you select can result in savings or added expenses of thousands of dollars a year so make sure you choose the right location for your needs.