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Property taxes

taal

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Glen, correct me if I'm wrong but I think you would advocate a 2.5 ratio is reasonable as nfitz is implying above i.e. if we were to reach that level we'd be competitive.

But your issue / concern is - tax rates will need to go up so much that our residential rates will be the highest in the GTA by 2015 and in that case a 2.5 multiplier still implies a very high commercial rate in comparison?
And the reason it needs to go up so much is over spending ...
 

Glen

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Glen, correct me if I'm wrong but I think you would advocate a 2.5 ratio is reasonable as nfitz is implying above i.e. if we were to reach that level we'd be competitive.

But your issue / concern is - tax rates will need to go up so much that our residential rates will be the highest in the GTA by 2015 and in that case a 2.5 multiplier still implies a very high commercial rate in comparison?
And the reason it needs to go up so much is over spending ...
No. What I advocate, and all due diligence on the matter purports is that the ratio is 1:1.

Keep in mind that even with a single tax rate applied to all classes of properties, residential is getting the lion share of services. There is also the issue of the education proportion of property taxes. Commercial / Industrial pay a rate that is 6.8X that of residential. If a property with a value of $500,000 is classified as residential it will pay $ 4,152.85 per year in property tax based on the 2010 rates. Of which $2,947.85 will go tho the city and $1,205 will go to the province for education. If that same property was commercial it would pay $17,516.95. Of that $9,211.73 would go to the city and $8,305.22 would go to the province. If we increase the city rate 30% and apply it to both examples as residential it would pay a total of $5,037.21. As commercial it would pay $12,139.99. The difference being entirely the education portion.

As for reducing taxes on the commercial/Industrial and Multiresidential classes, lets see the reality. Since the program was implemented, the commercial rate increased by 1.5%, 1%, 1.3%, 1.1%, 1.3% and lastly for 2010 by 1%. Add that to the 5% CVA capping adjustment that most older properties face and it is you can see that there is little being done.
 

nfitz

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No. What I advocate, and all due diligence on the matter purports is that the ratio is 1:1.
Assuming that the total revenue from property tax was unchanged, how much would residential taxes have to increase to get to a 1:1 ratio?
 

taal

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No. What I advocate, and all due diligence on the matter purports is that the ratio is 1:1.

Keep in mind that even with a single tax rate applied to all classes of properties, residential is getting the lion share of services. There is also the issue of the education proportion of property taxes. Commercial / Industrial pay a rate that is 6.8X that of residential. If a property with a value of $500,000 is classified as residential it will pay $ 4,152.85 per year in property tax based on the 2010 rates. Of which $2,947.85 will go tho the city and $1,205 will go to the province for education. If that same property was commercial it would pay $17,516.95. Of that $9,211.73 would go to the city and $8,305.22 would go to the province. If we increase the city rate 30% and apply it to both examples as residential it would pay a total of $5,037.21. As commercial it would pay $12,139.99. The difference being entirely the education portion.

As for reducing taxes on the commercial/Industrial and Multiresidential classes, lets see the reality. Since the program was implemented, the commercial rate increased by 1.5%, 1%, 1.3%, 1.1%, 1.3% and lastly for 2010 by 1%. Add that to the 5% CVA capping adjustment that most older properties face and it is you can see that there is little being done.

I do see your point here ... to me it seems counter intuitive that business pay a higher rate to begin with as it's really the residents that are demanding most of the services.

But let's step back here - I wasn't asking what would make the world a better place :) Simply what would make Toronto competitive, and the 905 does seem to have a 2 to 1 ratio as well ... so if we could achieve that we'd be competitive.


Also correct me if I'm wrong, but taking a look at the ratios across Canada - Toronto isn't really that bad! Some are even worse i.e. Vancouver seemed to have a higher ratio - same applies to other cities.

Of course Toronto's problem is a local one not international / national.
 

Glen

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Assuming that the total revenue from property tax was unchanged, how much would residential taxes have to increase to get to a 1:1 ratio?
It is really hard to say. Non residential values are depressed because of high taxes. So as taxes come down values go up. There is also the issue of capping. Take for example the way in which multi residential properties increase in value when the are turned into condos. Typically their values increase 2.5 to 3.5 as much. So despite the lower residential rate the average assessment increases enough to fully offset the decline in the tax rate. The city of London On., when looking at this dynamic found for London, despite the new rate being 1/3 the revenue lost was offset (~90-100%) by the higher assessment values. The Report also noted that in Toronto, the trend was that the lower rate was revenue positive.


I did a back of the envelope calculation a while back and. IIRC, the burden on residential would have to increase by about 35% (municipal portion only). Not very scientific though.
 

Glen

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But let's step back here - I wasn't asking what would make the world a better place :) Simply what would make Toronto competitive, and the 905 does seem to have a 2 to 1 ratio as well ... so if we could achieve that we'd be competitive.
Have a look at page 7 here.
The average in the 905 region was 1.35:1 in 2004. Toronto needs to be competitive on both a per sq. ft. level and as a direct cost of services. Remember that services like the TTC, in particular the Subway, add a great deal of value to offices in the CDB. If that value is not fully captured in values, then they should pay a higher tax rate.


Also correct me if I'm wrong, but taking a look at the ratios across Canada - Toronto isn't really that bad! Some are even worse i.e. Vancouver seemed to have a higher ratio - same applies to other cities.

Of course Toronto's problem is a local one not international / national.
And all those cites are facing the same issue.
 

taal

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And all those cites are facing the same issue.

I think there's one big difference - the surrounding regions in those cities (i.e. say Vancouver) also have this higher burden ... in other words, they can still be competitive on a local playing field as the other surrounding regions are similar ... this is just by checking a few suburbs of Vancouver so I might be wrong here.

That's a huge issue though - as really property tax levels are very much a local issue - sure they factor in domestically and internationally but they drive local decisions to a greater extent i.e. where to locate within a region not whether to locate in a region period.

So Toronto has it the worst in this regard unfortunately, and that's what's really hurting us.
 

js97

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Yet we had the same horror stories years ago as well, and it just didn't bear fruit.

There's no indication that tax rates will have to increase 10% next year. You've provided nothing other than the Toronto Sun to support that claim. There are worse-case assumptions based into that number that are not realistic.

In the meantime, you advocate that we accelerate the program to increase residential taxation so as to decrease commercial taxes. Tell me, what multiplier do you think we should have in Toronto? Miller has promised to drop the multiplier to 2.5 times by 2017. I guess you don't think that this is low enough; and yet you also suggest that perhaps we have a long-term financial problem ... so perhaps we should leave it where it is?
Nfitz... union worker/ city worker?
 

TrickyRicky

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An interesting tax discussion. My question is to what degree do you believe this issue influences real business competitiveness? Everyone wants to pay less tax but to be honest south of the 401 I don't really see how marginal differences in property tax make any difference in the strategic planning of successful businesses in the city. I question the historical accuracy implicit in the arguments made on this subject that taxation is a primary parameter in determining were businesses operate.

I see demographics playing a far more significant role. Businesses follow residential growth and the movement of demographic sub-groups as they move throughout the region based on their life-cycle. Many businesses moved to the 905 following their boomer owners and specifically many minority group lead businesses followed and continue to follow their primary target demographics into their respective urban enclaves. The fate of subsequent generations is less certain as you can see by the surge in investment in the old city of Toronto which is increasingly being populated by a large sub-group of affluent people and their business interests.
 

Glen

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An interesting tax discussion. My question is to what degree do you believe this issue influences real business competitiveness? Everyone wants to pay less tax but to be honest south of the 401 I don't really see how marginal differences in property tax make any difference in the strategic planning of successful businesses in the city. I question the historical accuracy implicit in the arguments made on this subject that taxation is a primary parameter in determining were businesses operate.

I see demographics playing a far more significant role. Businesses follow residential growth and the movement of demographic sub-groups as they move throughout the region based on their life-cycle. Many businesses moved to the 905 following their boomer owners and specifically many minority group lead businesses followed and continue to follow their primary target demographics into their respective urban enclaves. The fate of subsequent generations is less certain as you can see by the surge in investment in the old city of Toronto which is increasingly being populated by a large sub-group of affluent people and their business interests.
TR,

You have asked the million dollar question, and I believe the one that causes the most confusion on the issue and its importance.

For the most part, tenants (aka the market) sets lease rates. Taxes, land values, construction costs. etc only marginally so. Tenants look at the value of the location and services provided and determine what they will pay. So if the gross rent is set by the market and how that gross rent is distributed is what determines the value for the developer. If the tax portion of that pie is to great, it leaves to little left for the developer to justify building. So we get a city that does not grow. Existing buildings owners pay the price by having there buildings value decreased. IOW the tax gets capitalized into values, and it is the building owner, not the occupant whom pays. The competitiveness of the occupant is only marginally effected.

Most competitive studies are factored on existing businesses, or new ones using existing space. They do not address the the issue of commercial space development. Why this matters to Toronto besides giving residents employment opportunities closer to home (and all that that entails), is the excess revenue that commercial space provides. Unlike residential commercial properties use far less in services than they pay in taxes. They are very 'profitable' for the city. If you sell Ink-jet printers for a loss and ink for a profit, you want to do everything possible to sell as much ink. Toronto has been selling a lot of printers and very little ink.
 

Admiral Beez

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IMO, property taxes should be abolished. The value of your home has nothing to do with the amount of city resources you use, nor with your level of wealth or poverty. Instead property taxes should be replaced with a poll tax. All adults living in the city of Toronto would pay the same rate, with a lesser rate for those under 18, with perhaps some reduction for seniors. The poll tax would be based on taking the total city expenses divided by the number of residents.
 

GraphicMatt

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Okay. Let's go slow here. Say the poll tax was $500. For me and you, $500 isn't a lot. We could deal with it. Can you imagine a job and life situation where that would seem like a crippling amount, though?

Home value isn't a perfect indicator of wealth, no, and I'd be interested in looking at ways to make our property tax system more progressive, but a flat tax is a bad idea for a number of reasons.
 

Glen

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