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Tenants getting a tax break

Mar 20, 2017

The Kathleen Wynne government is forcing Hamilton to freeze tenant taxes as the province seeks a way to make rental housing more affordable. The provincial move means city council’s four months of budget debates have been basically irrelevant to most apartment dwellers.

The city’s long history of imposing much higher tax rates on multi-residential buildings has now come back to bite councillors who’ve been trying to minimize taxes for single family houses. Hamilton normally charges multi-residential properties 2.74 times higher rates than single-family homes and this is passed on to tenants through their rents.

Hamilton has the second highest rate in Ontario behind Toronto. Woodstock and Windsor are a little lower, while in London the rate is just over two times the house rate, and it’s below that in Ottawa, Kitchener, Mississauga and the Region of Durham. The Federation of Rental Housing Providers of Ontario estimates this imposes an average extra burden of over $1000 a year of tax on renters.

In Hamilton, that’s even higher, with city staff estimating that municipal taxes make up about one-fifth of total apartment rents. Council exempts new apartment buildings from the higher tax rate – charging them the same as single-family houses – so it’s only residents of older apartments that are hit by a much higher rate.

There have been many efforts in the past to lower these tax rates on apartments, starting with provincial policies in 1998 that called for a shift to roughly equal taxation on all types of residential properties. While those policies restrict increases in municipalities with the highest rates, they haven’t actually required cuts although most Ontario cities have moved in that direction.

Now the Wynne government is undertaking a full review of “the significantly higher property tax burden for multi-residential apartment buildings and its effect on housing affordability” and has blocked any increases – even those resulting from property reassessment – in any city where rates are more than twice the residential levy.

“Property taxes for multi-residential apartment buildings are generally reflected in the rents paid by tenants,” explains a Wynne government statement. “Therefore, the higher property tax burden is particularly concerning given the lower average incomes of tenants in multi-residential apartment buildings.”

Last fall the Municipal Property Assessment Corporation (MPAC) published a summary of multi-residential market trends that reported values have climbed an average of seven percent a year since 2012 and “many young professionals are choosing to rent instead of buy due to strong home prices.” House prices in Hamilton have been going up faster than almost anywhere in the country and rents are also climbing as the number of available units shrinks.

While those house price increases also mean higher taxes (even if council were to approve a zero percent increase) they also translate into windfall financial gains for owners – especially those who are ready to sell and downsize to a condo or move to a community with lower prices. Overall price hikes in Hamilton are six percent a year, but single-family residential values are up 6.5 percent.

City staff have warned council that the provincial freeze on tenant taxes “means that for the 2017 tax year, reassessment related shifts onto the Multi-Residential class will not be permitted and for municipalities where the Multi-Residential tax ratio is greater than 2.0, a full levy restriction will be implemented.”

That report also repeats earlier city justifications for the much higher tax rate on apartments “that traditionally, the average assessment of Multi-Residential units have been lower than that of residential properties making the tax burden comparable.”

The report also explains that “the Multi-Residential property class will benefit significantly from the restriction to pass any reassessment shifts to this class and also from the legislated levy restriction and would have a tax reduction of approximately (2.2%) for the 2017 tax year.”

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