Sixty per cent of the revenue Canadian municipalities earn comes from property taxes. While these revenues are relatively stable and payment isn’t easily avoided, they are regressive. Homeowners in the lowest income group pay five times more in property tax relative to their income than the highest-income homeowners. Property taxes can be made fairer by restructuring rates or providing income-based credits.
A better way
Singapore has implemented a progressive property tax. Properties with higher values are charged higher rates, and rental properties are given a tax break.
Highlights
- The largest source of municipal revenue
- Municipalities can apply different rates for different types of properties
- Rates must be adjusted yearly to keep pace with inflation and municipal needs
How does it work?
The regressive impact of property taxes can be reduced in a number of ways. Rates can be adjusted based on the type of dwelling to level out the impact on low-income earners. Lower rates for apartment buildings can take into account that renters, who are often lower-income, pay property taxes indirectly through their rent.
Property taxes can be made fairer for low-income households by allowing some residents, like seniors, to defer property taxes until they sell their home, as well as providing tax rebates or credits for low-income residents.
Property tax rates can also be scaled to charge a greater percentage on more valuable properties, similar to how income taxes are structured in Canada. Although wealth is not as closely paired with property values as it is with incomes, graduated rates could make property taxes significantly more progressive.
Who uses it now?
All municipalities in Canada have the ability to adjust rates for certain dwelling types, or provide rebates.
Montreal has adjusted its property tax rates on apartment buildings to address impacts on renters (many municipalities currently tax apartment buildings at a higher rate). In many municipalities, low-income seniors and people with disabilities can defer their property taxes until the property is sold. This allows people who have seen their property values increase while their income decreases to live in their home for longer.
No Canadian municipality has implemented graduated rates, with higher taxes applying to properties of higher values. But this progressive approach has been used in some European and Scandinavian countries, as well as Singapore.