Commercial property owners are paying nearly three times more in taxes than their residential counterparts for properties of equal value, says a new Altus Group report.

The report highlights significant discrepancies between commercial and residential property tax rates in Canada.

The report examines property tax rates in 11 major cities across Canada, offering insights into the challenges faced by commercial real estate (CRE) owners, including higher tax burdens, delayed reassessments, and additional levies.

Toronto-based Altus contends that commercial property owners are being unfairly overburdened. According to the report, commercial properties are disproportionately used to generate municipal tax revenue compared to residential properties.

On average, commercial properties pay 2.83 times more in taxes than residential properties of the same value. In some cities, the gap is even wider.

Quebec City saw the highest increase in the commercial-to-residential tax ratio in 2024, with an 8.7% rise, followed by Halifax (4.5%) and Vancouver (3.7%). Calgary, which experienced a sharp 9.5% increase in 2023, saw less than a 1% rise this year as it shifted some of the tax burden onto residential properties to meet provincially mandated ratios.

“The fairest approach to taxation is to treat all taxpayers equally in relation to the value of their property,” the report states.

However, the data shows that commercial property owners continue to bear the brunt of municipal revenue generation.

In Ontario, property tax assessments are still based on 2016 values due to a long-delayed reassessment. This situation has resulted in significant discrepancies between assessed values and current market prices, particularly in the industrial sector, says Altus.

More than half of the industrial properties sold in Toronto between 2023 and 2024 are assessed at less than 35% of their sale price. The next reassessment is expected to bring substantial increases for industrial properties, while office and retail properties that have not appreciated at the same rate could see reductions.

Montreal, which will not undergo reassessment until 2026, is expected to see lower assessments for office properties, higher assessments for retail, and significant increases for industrial properties.

The Altus analysis reveals that higher assessed property values don’t always translate into higher taxes. In the office sector, for example, Montreal’s taxes per square foot are the highest in Canada, despite Toronto and Vancouver having higher assessed values.

In the industrial sector, Halifax leads the country in taxes per square foot, largely due to municipal policies that impose higher rates on high-value properties in prime areas. Meanwhile, Toronto and Ottawa’s industrial taxes remain relatively low because assessments have not yet caught up with post-pandemic increases in property values.

Property taxes are not the only challenge for commercial property owners. Additional levies such as parking taxes, business taxes, and vacant home taxes vary by region and can significantly increase the overall tax burden, says Altus.

“These taxes are often introduced to fund municipal services or address social and environmental issues,” the report explains. “However, they also reduce the economic viability of existing properties, limit redevelopment opportunities, and increase costs for end users.”

The report underscores the heavy reliance of municipal governments on commercial properties to fund services, operations, and schools, concludes Altus. The significant disparity in tax rates between commercial and residential properties, combined with additional levies, exacerbates challenges for commercial property owners, especially amid high vacancy rates and stagnating rent growth.

To mitigate these challenges, Altus advises commercial real estate owners to proactively manage their tax liabilities by staying informed about property assessments and tax policies, as well as exploring opportunities to appeal assessments.

According to Statistics Canada, Canadian property taxes posted their largest year-over-year increase in 32 years in October, Statistics Canada reported.

The sharp 6% rise outpaced the 4.9% increase recorded in October 2023.

Pictured: The amounts, in percentage, that commercial property owners pay above residential rates

Illustration: Courtesy of Altus Group