Over the last few days, we have looked at the question of the Toronto Land Transfer Tax.
It is a tax which exists only in Toronto and not in any of the other cities in Ontario. In order to properly consider this tax, we also have to look at the property tax issue generally.
Toronto Property Taxes
Across the board, based on a value perspective, that is, a $500,000 property in Toronto compared to a $500,000 property outside of Toronto, there is a substantial differential.
The differential generally seems to be in the range of about 30% to 40%. The surrounding municipalities charge their property owners more money than does the City of Toronto. The surrounding municipalities known as the “905” are newer and the infrastructure is newer than most of Toronto (the “416”).
All the really large commercial properties in the GTA (416 and 905) are located in Toronto.
The City has increased taxes on its commercial properties and maintained its levels of taxation on its residential properties.
The problem with this approach is that smaller developers moved out to the 905 because the Toronto commercial taxes were just too high. Naturally, that’s only one factor in the equation, but it’s often significant enough to make a difference.
And, it’s not just the small companies; the Royal Bank, Canada’s largest corporation has moved most of its GTA workforce (about 8,000 employees) from downtown Toronto to Mississauga, where it has a substantial presence at the 401 and Mississauga Road.
Traditionally, the Council of the City of Toronto has had a bias against the commercial property owners and in favour of the residential property owners.
This bias is quite evident, and City of Toronto’s residential taxes remain particularly low compared to other jurisdictions.
However, there is clearly pressure on this decision since commercial property owners are transferring, building and developing in the 905.
Continuing its bias against commercial property owners is rather unwise. This tax base will no longer be able to support Toronto’s deteriorating infrastructure.
The City is facing a deteriorating and decaying infrastructure. Replacements are required not repairs and fix-ups.
A great deal of the 905 has been financed by developers and development fees when the new subdivisions were constructed. They are not worn out yet, like they are in the City.
Residential Tax System in the 905
Without many commercial developments to speak about, the 905 municipalities had to focus the taxes on the residential properties. They were all, at first, bedroom communities.
Right now, the 905 homeowner pays a 30% to 40% premium.
Toronto Land Transfer Tax
Any homeowner would prefer to pay Toronto residential municipal taxes. It’s a steal compared to where they are. If you decide to purchase in the 416, and pay the Toronto Land Transfer Tax, it will take you about 7 years to get to a break-even position. After that, you are saving money each year.
In that regard, the Toronto Land Transfer Tax acts like an “entrance tax”.
All things being equal, the least expensive route to go is to pay the Toronto Land Transfer Tax on the way in, and the Toronto residential taxes annually. By year eight you are saving money and you will continue to save money each year thereafter.
Toronto has two taxes, which combined (after 7 years) are less than the 905’s single tax. So, to a certain extent, it’s just “levelling the playing field”.
In any evaluation of the issue, the transfer tax must be considered in conjunction with the property taxes. To look at it as an isolated tax, will just lead to erroneous conclusions.
Brian Madigan LL.B., Broker