Ottawa and Toronto – Opposite Ends of the Property Tax Rate Range
Imagine you’ve found your dream home. The property, with its four bedrooms, two-car garage and fully-fitted kitchen, is within your carefully-calculated budget. You’re delighted with the neighbourhood, especially the local schools and parks, and can see yourself and your family living there for many years. But then you find out about the residential property tax and that it’s going to cost you ten thousand dollars a year.
You’re not alone – many people often overlook this annual tax. Different cities and municipalities within Canada have widely different residential property tax rates. But don’t assume that you can’t afford to look for homes in a highly-desired city in Ontario. While Ottawa does have one of the highest property tax rates in the province, Scarborough and Toronto have the two lowest rates.
How is property tax calculated?
Property tax is an annual fee imposed on all properties – residential and commercial – in a city or municipality to generate revenue to support the council’s operating budgets. The operating budgets support the maintenance, renewal and creation of the infrastructure needed to provide services to the people. The infrastructure includes emergency response services, public transportation and the public library system.
Property taxes vary from city to city as each city council sets its own rate and chooses which taxes to include. In Ontario, the residential property tax rate includes both a base property tax rate as well as an education tax. Every year, the Municipal Property Assessment Corporation assesses the values of all the homes in the region. Each assessed home value is then multiplied by the residential property tax rate to calculate the total property tax due for the year for that home .
The Effective Property Tax rates in Ontario
The assessed value typically is very far from the real market price of the property. This makes it very hard for potential buyers to know what the actual property tax of a specific property is. Even if you know the official property tax rate, you might not be able to accurately estimate your annual property tax. That’s where the effective property tax rate comes in – with it, you can calculate property taxes based on publicly available market prices rather than assessed valuations.
Knowing all these issues, Wowa decided to find the relationship between the actual prices of properties and their municipal taxes. Using the listing prices of 16,000 residential properties in 54 Ontario cities along with the property taxes paid on these homes, WOWA has calculated the effective residential property tax rates. These real-life numbers differ from other published rates which use the home’s assessed value , but more importantly this difference reflects a better representation of the financial reality in the real estate market of Ontario.
The effective property tax rates in Ontario calculated by Wowa range from 0.38% to 0.86%.
The lowest effective property tax rates in Ontario:
- Scarborough 0.38%
- Toronto 0.40%
- Milton 0.43%
- Oakville 0.46%
- Markham 0.47%
- Vaughan 0.47%
- Richmond Hill 0.47%
The highest effective property tax rates in Ontario:
- Ottawa 0.78%
- Woodstock 0.79%
- Belleville 0.83%
- Greater Sudbury 0.86%
- Owen Sound 0.86%
The full list of the effective property tax rates for 54 Ontario cities is available here.
What’s behind Toronto’s low property tax rate?
It may not be surprising that Ottawa, as the nation’s capital city, is near the top with a property tax rate of 0.78%. In contrast, Toronto, Canada’s largest city, is at the bottom of the pack with the second-lowest effective residential property tax rate for cities in Ontario, only 0.02% less than Scarborough. To understand this discrepancy, we have to examine why Toronto, in contrast to Ottawa, can afford to provide services to its citizens at such a low property tax. Maybe living in the big city isn’t as expensive as most people think?
Firstly, politics makes Toronto a special case. Recent mayors have worked to keep all increases in taxes to or below the level of inflation. The 2019 city budget continued this controlled increase to the residential property tax .
Secondly, Toronto has the same advantage that all cities with highly-valued real estate and density, especially if home prices continue to rise. Any city council can afford to set a low property tax rate if many home owners with high-valued properties will be paying the property tax. In contrast, in cities with lower-property values or a smaller population, the property tax rate will have to be higher to raise enough funds for the operating budgets. So, while it may seem counter-intuitive, you will often find that the higher the value of residential property in a city, the lower the residential property tax rate .
In addition, a significant portion of Toronto’s funding comes from the land transfer tax, calculated as a percentage of the property value.
Are you getting value for your property tax dollars?
All home owners should know what services their property taxes are funding. In Toronto, for example, approximately 23% of the residential property tax goes towards police services and 17% goes to to the Toronto Transit Commission .
It’s equally important for home owners to ask what services are not being funded and for which they may be charged a separate fee. Does the property tax include garbage pickup or is this a separate fee? Are they billed monthly for utilities such as water or are utilities included annually as part of their property tax? Is the infrastructure of the city serving their needs with frequent and accessible public transport, rapid paramedic emergency response times, an efficient and reliable sewer system and enough funds to upgrade and scale anything as the population increases? Maybe a higher property tax rate goes towards providing more responsive services .
The bottom line
Remember that the residential property tax rate is just one part of your property tax calculation; the value of your property is the other element. While the roughly 0.5% difference in the property tax rate between Scarborough and Owen Sound may not sound like a lot, it could mean a difference of several thousand dollars a year. Location is, once again, a key factor in your home-buying budget calculations.
Effective property tax rates by city
|City||Number of Data Points||Average Effective Property Tax Rate (%)|
|Prince Edward County||28||0.5898|
You can find another in-depth comparison of Ontario’s property tax rates by Jacob Lorinc on The Star at https://www.thestar.com/news/gta/2019/08/02/toronto-has-the-lowest-property-tax-rate-among-35-major-ontario-cities-a-new-study-says.html
- Graham, Penelope. “Ontario cities with the lowest and highest property tax rates.” zoocasa. August 1, 2019. https://www.zoocasa.com/blog/ontario-property-tax-rates-2019/
- Ottawa Business Journal. “How do Ottawa’s property tax rates stack up?” August 3, 2018. https://obj.ca/article/how-do-ottawas-property-tax-rates-stack
- Rider, David. “Ryerson study concludes Torontonians could pay far more in property taxes.” The Star. February 28, 2019. https://www.thestar.com/news/gta/2019/08/02/toronto-has-the-lowest-property-tax-rate-among-35-major-ontario-cities-a-new-study-says.html
- Pelley, Lauren. “Here’s how much more you’ll be paying in property taxes in 2019 – and where that money’s going.” CBC News. March 07, 2019. https://www.cbc.ca/news/canada/toronto/property-tax-toronto-budget-2019-1.5042301
- Lorinc, Jacob. “Toronto has the lowest property tax rate among 35 major Ontario cities, a new study says.” The Star. Aug 2, 2019. https://www.thestar.com/news/gta/2019/08/02/toronto-has-the-lowest-property-tax-rate-among-35-major-ontario-cities-a-new-study-says.html
- Lorinc, Jacob. “Ryerson study concludes Torontonians could pay far more in property taxes.” The Star. Feb 28, 2019. https://www.thestar.com/news/city_hall/2019/02/28/ryerson-study-concludes-torontonians-could-pay-far-more-in-property-taxes.html