*This post was created in collaboration with Alpine Credits
It seems like just about everything is taxed, and your home is no exception. Property taxes are part and parcel of homeownership. They can take up a significant chunk of your yearly budget. The question is, just how much can you expect to pay in property tax in Canada?
Let’s take a closer look at this specific type of taxation, and what affects the amount you have to pay.
Key Points
- Homeowners must pay property taxes to cover the cost of local services, like policing and infrastructure, as well as education.
- The amount you pay in property taxes is based on the assessed value of your home and your local tax rate.
- You can pay your property taxes directly to the municipality or by rolling them into your mortgage payments.
What Is Property Tax In Canada?
Property taxes are fees charged by the local government to homeowners to help cover the cost of public services, such as road maintenance, garbage collection, police and fire stations, street lights, park maintenance, and so forth. The amount you pay in property taxes in Canada depends on a few different factors, including where you live, which will determine your tax rate.
How Is Property Tax In Canada Calculated?
Municipal governments across Canada establish yearly property tax rates in response to changing property values and government revenue needs. These tax rates typically range from roughly 0.5% to 2.5%.
Property tax rates are calculated by multiplying the current market value of a home by the municipality’s property tax rate. As mentioned, these rates change each year. What you’re paying this year will likely be different from what you paid last year.
For instance, if your home is currently valued at $500,000 and the property tax rate in your municipality is 0.9%. Your property taxes would be calculated as follows:
$500,000 x 0.90% = $4,500
In this example, your annual property tax payment would be $4,500, payable to your local municipality.
Types Of Property Taxes In Canada
There are a couple of types of property taxes in Canada, including the following:
Property Taxes For Homes You Live In
When you purchase and occupy a home, you’ll be responsible for covering the property taxes levied against your property from the municipality in which the home is located. City property taxes are made up of the following components:
- City tax rate
- Education tax rate
- City building fund
Each of these components comes with its own tax rate, which is added together to create the total tax rate. This rate is then applied to the current market value of a home to determine the annual property taxes owed to the city.
Property Taxes For Rental Properties
If you rent out your residential property, you are required to pay property taxes. Whether you occupy the home or a tenant lives in it doesn’t matter. You’re still on the hook for paying property taxes.
However, you’ll also need to pay income taxes on your rental income. The rent you collect will be included in your total income earned for the year, which will be taxed at the appropriate income tax rate.
Fortunately, you can deduct several expenses related to operating a rental property when you file your income taxes. This should offset your tax obligations.
What Is The Difference Between Interim And Final Property Taxes?
Municipalities across Canada typically send out interim property tax bills to homeowners. These taxes apply to the first 6 months of the year but are calculated based on the previous year’s tax rate. Municipalities send out interim bills as a way to start collecting tax payments earlier in the year instead of waiting until year-end.
While the interim property tax bill’s tax rate is based on last year’s rate, the payment goes toward the entire year’s property tax payment. If the current year’s tax rate increases from last year’s rate, your second interim bill will be higher than the first one. But if the property tax rate decreases, your next interim bill will be less.
You’ll receive a final property tax bill at some point, which will detail the full year’s property tax owed.
Property Tax Increases In Canada
As mentioned, property tax rates change every year. In most cases, these rates increase in response to a rise in property values. To give you an idea of how much property tax rates have increased over the past year, let’s take a look at rate changes in some of the largest cities in Canada:
Toronto, Ontario
The 2024 residential property tax rate for Toronto, excluding the education tax rate, is 0.554586%. This is a significant increase from the 2023 property tax rate (excluding the education tax rate) of 0.506079%. In 2023, the total property tax rate in Toronto for residential properties was 0.666274%, including the education tax rate.
As a result of soaring home prices, inflation, and changes to development fees, homeowners across Ontario will see higher property tax bills in 2024. This includes the province’s capital, Toronto.
Vancouver, BC
The 2023 property tax rate for Vancouver was $2.78070 per $1,000 of your property value.
Like Toronto, Vancouver will also see a property tax rate hike in 2024. The new city budget will likely result in an average property tax increase of $98 to $260, as the city looks to improve core city services such as infrastructure maintenance, policing and fire services, and road work.
Montreal, Quebec
The property tax rate in Quebec is expected to spike this year. In fact, the city is expected to see an average increase in property taxes, marking the highest jump in over a decade.
The property tax rate for Montreal in 2024 is $0.4977 per $100 of your property value.
Calgary, Alberta
The 2024 property tax rate for Calgary is 0.64861%. Interestingly, that’s a slight dip from 2023’s property tax rate of 0.657180%. This comes despite city officials recently voting to increase residential property taxes in Calgary by 7.8%.
That said, the average homeowner may still see an increase in the amount they pay in property taxes based on the increase in property values. As of January 2024, the average home price in Calgary is $557,500, marking a 10.2% increase from the same month in 2023. Given this, the small decline in the property tax rate may not be enough to prevent an increase in property tax payments among Calgary homeowners.
Property Tax Exemptions In Canada
While residential homeowners in Canada are generally subject to paying property taxes to their respective municipalities, some types of properties may be exempt. Property tax exemptions vary among provinces and municipalities. However, they typically apply to the same types of properties, such as the following:
- Places of worship
- Government properties
- Educational facilities
- Airports
- Community halls
- Properties held by non-profits
Why Are Property Taxes Different In Each Province?
Property tax rates are different in every municipality across Canada, even if the differences are marginal. Certain factors influence the differences in property taxes in various provinces and municipalities, including the following:
Assessment Methodologies
A subject property’s value plays a direct role in the amount of property taxes the owner must pay. The value of a home is based on the municipality’s assessment, which is carried out by professionals using specific strategies. Each province has its own dedicated property assessment entity that estimates the current market value of properties for the purpose of taxation.
Because these assessments are conducted differently between provinces, there are typically discrepancies in assessed values. In turn, there are differences in property taxes as well.
Funding Requirements
As mentioned, municipalities use the money collected from property taxes to fund various needs, such as infrastructure and services. If there is an increased need for a given service or segment, cities may increase the property tax rate to boost funding. The demands and requirements among provinces and municipalities vary a great deal, which subsequently leads to differences in property tax rates.
Variations In Property Values
The average cost of a home in one city can be much higher or lower than the cost in another city. For example, the Greater Toronto Area’s (GTA) average home price is currently $1,093,900, while the average home price in Saint John, New Brunswick is $278,500. Even at the same tax rate, Toronto can generate a lot more revenue in property taxes because of the much higher property values.
Housing market conditions affect average property values, and such conditions vary widely between provinces. Provinces and cities with higher home values can accumulate more tax revenue, even if their property tax rates are lower, simply because of the higher dollar value attached to each property. On the other hand, provinces and cities with lower property values may need to increase their tax rates to collect enough revenue.
What Home Values Are Used To Calculate Property Taxes?
Each municipality’s property tax rate is multiplied by the current assessed value of a home. These values are determined by the assessment offices in each province. The frequency of these assessments depends on the province.
For instance, in Ontario, assessments of properties are performed every 4 years, while in Manitoba, properties are assessed every 2 years. In Alberta and BC, assessments take place annually.
Generally speaking, property assessments consider the following factors to determine a property’s value:
- Size
- age
- Location
- Improvements
It should be noted that for the purpose of property tax calculations, a property’s assessed value is used, and not its market value. A property’s current market value is used in the world of real estate to determine listing prices and mortgages.
How Do You Pay Your Property Taxes?
There are two main ways to pay your property taxes:
Directly To The Municipality
You should receive a property tax bill from the municipality that you live in, usually in installments for an interim bill and a final bill. You can pay the municipality by mailed cheque, by telephone, or through online banking.
With Your Mortgage Payments
Lenders often allow homeowners to include property tax payments in their mortgage payments. That way, you only have to worry about one bill instead of two. With this payment method, your lender will be responsible for paying your property taxes to the municipality on your behalf.
What If You Can’t Afford Your Property Taxes?
With property taxes increasing just about every year, it can be tough to come up with more money to cover these bills. If you’re finding it difficult to afford your property taxes, there are a few things you can do:
Roll Your Property Taxes Into Your Mortgage
As mentioned, you may be able to roll your property taxes into your mortgage payments. This can make it easier to budget with one less bill or debt payment to have to worry about. If you’re the type to get overwhelmed with juggling a variety of bills, consolidating your mortgage and property tax payments can be a good option.
In some cases, combining your mortgage and property tax payments may be required by your lender. If you fail to pay your property taxes, you risk having a lien placed on your home. Combining your property tax with your mortgage payments mitigates this risk.
Use Your Home Equity
Your equity refers to how much of your home’s value you own. It is calculated by subtracting your outstanding mortgage amount from the property’s current value. If you have enough equity built up in your home, you may be able to access it and use the funds to pay your property taxes.
Home Equity Loan
One way to use your equity is to take out a home equity loan. This financing option allows you to borrow against the equity in your home, which collateralizes the loan, and the loan amount is based on the home’s value.
The lender will provide you with a lump sum of money, which you can use to pay your property taxes. Then, you’ll repay your loan in regular installments, along with interest.
HELOC
Alternatively, you can apply for a home equity line of credit (HELOC), which is a type of revolving credit. Again, your lender will use your home as collateral, but rather than providing you with a lump sum of money, you’ll be granted access to a specific credit limit. You can then draw from this credit line as the need arises and pay interest only on the portion withdrawn, not on the entire credit limit.
Whichever option you choose, you can use your home’s equity to help cover the cost of property tax payments when money is tight.
Apply For A Personal Loan
With a personal loan, your lender will provide you with a fixed amount of money that you can use for a variety of expenses, including paying your property taxes. You’ll have a certain amount of time to pay back the loan via installment payments, which include a principal and interest portion.
You can pay the full property tax bill by the due date without having to come up with the entire amount on your own.
Your credit score affects your interest rate, so make sure you check your score first before applying. The higher your credit score, the lower the rate your lender will likely charge. You can check your credit score for free by using Loans Canada’s CompareHub.
Defer Your Taxes (If You’re A Senior)
There are programs available that allow eligible Canadians to defer their property taxes. More specifically, lower-income seniors may qualify for property tax deferrals, depending on their location and the requirements of the programs available.
If you’re an eligible senior, you may be able to defer your property tax payment to a later date, which will give you more time to come up with the money to pay your taxes. However, you’ll still have to pay interest on the amount deferred. Look into the property tax deferral program for seniors in your province.
Speak To Your Municipal Government
If you won’t be able to make the due date for your property tax payment, reach out to your municipal government right away. They may be able to assist you with an alternative payment option, such as partial payments or another type of alternate payment schedule.
The sooner you speak with your municipal government, the better, as you don’t want to be late on your payments. Not only will you be charged interest on late payments, but you also risk becoming delinquent. This may cause your credit score to tumble and result in collection actions against you.
Final Thoughts
Property tax in Canada is unavoidable if you own a home. And as your home’s value increases, so will the amount you’ll have to pay. If you’re having trouble paying your property taxes, you have options available. Reach out to your lender or the CRA to find out what recourse you may have to stay caught up on your property taxes.
