No matter where you are located, as a landlord or property manager, it's imperative to understand the complex terrain of property taxation. This is extra important when you consider how the laws and regulations surround property taxes are constantly changing.
All areas in Canada have their own evolving rules to keep in mind, and Toronto is no exception.
This guide delves into the nuances of Toronto's property tax system, shedding light on rates, calculations, assessments, and the legislative framework that molds it.
We'll also provide tips for taking advantage of exemptions so that you can lower your tax burden and maximize the profits of your property management business.
Understanding Property Tax in Toronto
Property tax is a fundamental source of revenue for municipalities, playing a pivotal role in funding essential services like maintenance, public transit, emergency services, and parks.
In Toronto, property tax management is shaped by a mixture of provincial legislation and local policies.
If you want to see the status of your property's taxes, due amounts, or payment dates. the City of Toronto offers a property tax lookup tool.
For those looking to understand what it all means, though, we'll break down the basics.
Municipal Property Assessment Corporation
We'll start by going over the Municipal Property Assessment Corporation (MPAC).
MPAC is an independent, nonprofit corporation that the Ontario government established in 1997. Its primary role is to assess and classify properties across Ontario in compliance with the Assessment Act and other related legislation.
Like with other Ontario municipalities, for Toronto, MPAC's assessments form the basis for calculating property taxes. While the City of Toronto sets the property tax rates and issues tax bills, the amount each property owner pays is directly influenced by MPAC's assessment of their property's value.
These assessments are done through a valuation process that considers the sales of comparable properties, building details (e.g., size, location, and age), and other relevant factors.
During this process, the Municipal Assessment Corporation also classifies the property by its use or property type (i.e., residential, commercial, or industrial). This can influence the property tax rate applied.
Every four years, MPAC conducts a province-wide reassessment. This process updates the assessed values of properties based on recent market trends. However, any increase in a property's assessment is phased in over the four years following a reassessment, while decreases are applied immediately.
Different Types of Property Tax Bills in Toronto
Toronto residents typically encounter two main property tax bills.
Usually issued in January, the interim tax bill is the first bill of the year. It's based on 50% of the previous year's taxes, adjusted for any supplementary or omitted taxes from the previous year. The City calculates it using the tax rate from the previous year, providing a preliminary bill before the final tax rates are set for the current year.
In May, the final tax bill is issued. This comes after the City's budget is approved and the final tax rates are set. It's based on the current year's assessed value multiplied by the current year's tax rate, minus the amount billed on the interim bill. The bill ensures that the property owner is billed only for the balance of the year's taxes.
Both bills are issued after the City of Toronto approves its budget and the Province of Ontario provides the education tax rate. Each bill is payable in multiple installments, with due dates spread throughout the year.
Supplementary and Omitted Bills
In some cases, additional bills may be issued.
For instance, supplementary tax bills arise when there's an increase in the assessed value of a property. Usually this is because of improvements, renovations, or additions that weren't reflected on the original bill but influence the assessed value.
If a property, or an improvement to a property, was not assessed in a year it should have been, an omitted tax bill can be issued for the current year and the two preceding years.
Both these bills can come at any time of the year and might mean an unexpected cost for landlords and property managers. For that reason, it's important to be aware of them and their implications.
How Property Tax Affects Landlords and Property Managers
For landlords and property managers, property tax is not just another bill to pay. It directly affects the following:
- Assessed value of the property
- Rental pricing
- Investment decisions
When setting rental prices, you need to factor in property tax rates. This is especially important in commercial properties, where these costs might be passed on to tenants.
Furthermore, an understanding of property tax trends can inform decisions about property investment, sales, and portfolio management.
How Often Do You Pay Property Tax in Toronto?
One of the most immediate concerns for landlords and property managers when it comes to property tax is the frequency of payments.
In Toronto, the payment schedule is structured and consistent, but it's essential to stay ahead of it to avoid potential penalties.
Toronto property owners are typically billed twice a year through the aforementioned interim property tax bill and final property tax bill.
The interim tax bill has three installment due dates in March, April, and May, while the final tax bill has installments spread over July, August, and September.
Note that these are just the regular installment due dates, though. If you are under a pre-authorized tax payment plan (PTP), then you may pay on a monthly basis over the course of two, six, or even eleven installments.
If you receive supplementary or omitted tax bills due to reassessments or property improvements that affect assessed value, the frequency of these payments can vary. They may come at different times throughout the year and will have their own set of due dates.
Keeping a close eye on mail from the City or MPAC ensures you won't miss these unexpected bills.
Consequences of Late Payments
If you miss a due date for Toronto property tax payments, you may be subject to penalty, interest, and fee charges.
Penalties for late payment are added at a rate of 1.25% on the first day of the month following the missed due date and continue to be added on the first of each subsequent month as long as the taxes remain unpaid.
This penalty is set by the City and cannot be waived or reduced.
Fees may also be added depending on actions taken, such as a final notice, dishonored check processing, and more.
Persistent non-payment and property tax arrears can lead to more severe consequences. The City may initiate legal action to collect the unpaid taxes, and this could lead to additional legal fees.
In extreme cases, the City could even sell a property to recover the unpaid taxes.
How to Pay a Property Tax Bill in Toronto
Ensuring timely payment of property tax in Toronto is crucial for landlords and property managers. The good news is that the City offers multiple convenient methods to facilitate these payments, allowing individuals to choose the option that best fits their needs.
Here are your options:
- Online banking
- Online payments through MyToronto Pay
- Direct mail
- In person at civic centers or the City Hall
- Telephone banking
- Pre-authorized payment plan (PTP)
Note that in the banking methods, you can usually set the City of Toronto as a payee. Refer to your 21-digit property tax account number when doing so.
PTP and MyToronto Pay are unique options for making Toronto property tax payments, so we'll go into them a bit more below.
MyToronto Pay is a collaboration between the City of Toronto and PayIt that lets residents and businesses alike make payments for not only property tax but also utility bills and parking violations. The program is constantly expanding its services.
MyToronto Pay offers some additional features that a regular financial institution might not:
- Manage bills and payments
- Save and secure payment options
- View payment history
- Paperless eBilling
- Bill reminders
- Pre-authorized utility payments
Pre-Authorized Payment Plan (PTP)
With the aforementioned PTP payment program, you can allow the City to automatically withdraw property tax amounts from your bank account on scheduled dates.
There are different plans to choose from, such as the Regular Installment Plan (payments on standard due dates) or the Monthly Plan (spread across 11 months).
This method is particularly beneficial for landlords and property managers with multiple properties, as it ensures payments are never missed.
No matter which method you use, however, make sure to keep documented records of your payments, stay updated on payment procedures, and plan ahead to accommodate any potential delays (especially if you're paying by mail or in person).
How Much Do Property Taxes Cost in Toronto?
Toronto homeowners pay on average $6,870-7,971 for their property taxes.
While property taxes vary widely based on property class and location within the city, Toronto's residential properties have seen an average property tax that typically hovers slightly below the average for major cities in Canada. This is due to Toronto having the second-lowest property tax rate in the region.
With that said, remember that "average" property taxes might not be representative of what any particular homeowner pays, given the broad diversity in property values and types in the city.
Factors Used in Toronto Property Tax Calculation
So how are those property taxes calculated?
To accurately estimate taxes for your property, you need to first understand the factors that influence Toronto property tax:
- Assessed value: MPAC assesses the value of all properties in Ontario every four years. This assessed value represents the property's estimated market value and serves as the basis for calculating property taxes.
- Municipal tax rate: Each year, the City of Toronto sets a tax rate for different property classes (e.g., residential or commercial). This rate determines the portion of the property's assessed value that you'll owe in municipal taxes.
- Education tax rate: The Province of Ontario sets an education tax rate that is added to the municipal tax rate. Although it's a smaller percentage, it's an essential component of the total property tax rate.
- City building fund: Toronto introduced the City Building Fund to support infrastructure projects. It's an additional levy that's applied to the property tax.
How is Property Tax Calculated in Toronto?
Calculating your Toronto property tax involves the aforementioned components. Once you have that info, you would follow these steps to get a good estimate of what your property taxes would look like:
- Determine the assessed value: Check MPAC's assessment of your property. This can be found on your property assessment notice, through the online AboutMyProperty tool, or detailed on your Toronto property tax account.
- Identify applicable tax rates: Get the current year's municipal and education tax rates from the City of Toronto's website or property tax bill.
- Do the math: Multiply your property's assessed value by the sum of the municipal tax rates, education tax rates, and any additional levies.
Let's say the assessed value of a residential property in Toronto is $800,000. If the municipal tax rate's 0.45%, the education tax rate's 0.15%, and the City Building Fund levy is 0.05%, the calculation would look like this:
$800,000 × (0.45% + 0.15% + 0.05%) = $800,000 × 0.65% = $5,200
In this example, the estimated property tax for the year would be $5,200.
If, after crunching the numbers, you still have questions or uncertainties regarding taxation, you can contact MPAC or the City of Toronto Revenue Services.
For assessment concerns, reach out to MPAC. They can provide clarity on how your property's value was assessed and answer any related questions. If you believe there's an error in your property's assessment, MPAC also offers a process for property owners to request a reconsideration.
The City of Toronto Revenue Services is your go-to for inquiries about your property tax bill, payment deadlines, and other related topics. They can assist with understanding the breakdown of your bill, payment options, and provide guidance on any tax relief programs you might be eligible for.
How Can I Lower My Property Taxes in Toronto?
Property taxes can be a significant expense for landlords and property managers. Fortunately, in Toronto, several strategies and programs can help you reduce your property taxes.
You should always stay updated on property tax legislation, and you can be mindful when improving your property to make sure it isn't appreciating so much that your assessed values and tax bill are affected.
Besides those considerations, however, there are other strategies you can take to reduce your business costs associated with property taxes.
Challenge Your Property Assessment
If you believe the assessed value of your property is inaccurate or higher than similar properties in your neighborhood, you'll have to get in touch with the MPAC.
You can start by reviewing your assessment with the MPAC. If after review you still believe the assessed value is incorrect, you can file for a reconsideration.
If successful, this can reduce the assessed value of your property and subsequently lower your property taxes.
Leverage Available Exemptions and Rebates
Here are some exemptions and rebates to look out for as well:
- Senior homeowners property tax grant: Seniors may be eligible for a grant to help with their property taxes.
- Vacancy tax rebate: For landlords, if you have commercial or industrial properties that have been vacant for at least 90 consecutive days, you might qualify for a tax rebate.
- Heritage property tax rebate program: Owners of designated heritage properties can apply for a tax rebate in exchange for preserving the property's heritage attributes.
- Land transfer tax rebate: First-time homebuyers in Toronto can receive a rebate on the municipal land transfer tax, up to a certain amount. While not a direct reduction in property taxes, it's a tax relief relevant for new property owners.
In specific circumstances, such as extreme sickness or poverty, property owners might be eligible for a reduction or cancellation of their property taxes as well.
For landlords and property managers in Toronto, property taxes are an inescapable reality.
But that doesn't have to be daunting.
With the right knowledge and strategies in hand, this aspect of property management becomes way more manageable.
Understanding the nuances of Toronto's property tax system, from assessment to payment, can empower you to make informed decisions, minimize surprises, and optimize your financial outcomes.
Remember, the realm of property taxes is not static. It evolves with market trends, legislative changes, and city developments. By staying informed and proactive, you can be strategic with your investments and make your property management business as profitable as possible.