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Toronto Property Tax Increase - 3 Things You Haven't Heard About

We are only a few weeks into 2024 and one major side effect of a slow real estate market is showing up and causing a lot of debates.


You may not have thought about this one directly.


Every time a property changes hands, who does the buyer pay other than the seller?


That’s right.


The government, land transfer tax.


If the property is in the city of Toronto, you pay double the amount.


Back in 2022, we saw over 27,000 transactions in Toronto and the city collected $948 million dollars just from land transfer tax.


In 2023, we saw just over 24,000 transactions, a 12.3% drop from 2022.


Let’s just say this translates to roughly 12% drop in the city’s revenue from land transfer tax, that’s $114 million dollars.


The city would have to make up for this loss from somewhere else.


On top of this, the city is already running a $1.8 billion dollar deficit.


As a result, city officials proposed a 10.5% increase in property taxes for 2024.


Worse yet, the city is still waiting for the Federal government to provide $250 million to support over 5,000 refugees.


If the Federal government refuses to provide this funding, the city will have to make up for this amount, again through more property taxes.


So city officials warn that the property tax increase could climb as high as 16.5%.


Obviously, this is highly controversial.


I’m going to give you my take on this based on 3 main concerns.


The third one is a rent implication that you may not have thought about, especially for rent controlled units.


So if you own a rent control unit, make sure you read along to the very end.



#1 Approval and Effective Dates


At this point, the 10.5% increase in property tax is just a proposal.


It still needs to go through consultations and committee meetings, the final decision will be made on February 14.


So is it possible for the percentage increase to come down?


Yes, because there are also political reasons behind this.


But I personally don’t think the final number will be too far from the proposed 10.5%.


Maybe we will see something like 8%, but ya, 10% would be the ballpark.


So if 10.5% is approved on February 14, when would the increase be effective?


Essentially immediately, for the year of 2024.


You normally receive 2 property bills per year, an interim bill for the March to May installments and a final bill for the July to September installments.


The interim bill will still reflect the old tax rate and the increase for the whole year will be added to the final bill.


#2 Investor Sell-Off


The high interest rates are already causing big headaches to investors and some investors are selling their units to offload.


Now that the city is adding even more burden to property owners, is that going to cause more investor sell-offs?


Let’s take a look at what the 10.5% property tax increase really means.


For a typical 3 year old 1 bedroom condo in downtown Toronto, the current property tax is $2,350.


With a 10.5% increase, we would see a $247 increase per year with a new property tax amount of $2,600.


This means the investor would have to pay an extra $21 per month.


It is not nice, but is it an amount big enough to trigger a selling decision?


I don’t think so.


Besides, investors will get some relief from rate cuts this year.


Yes, there are some investors looking to sell, especially if they are in a negative cash flow situation.


How bad is the overall situation?


Let me give you some reference.


As of today, we are managing over 600 units for our investor clients in our rental management program.


How many of them are looking to sell in 2024?


Only 3%.


Again, not nice, but also not a life-changing number.


#3 Rent Increase


When the city needs money, they try to get it from the landlords.


When the landlords need money, who do they try to get it from?


The renters, of course.


You see, the City always says they want to help renters, maybe they can in the longer term, but what are they really doing in the short term?


They are effectively making renters pay more rent.


What about the units under rent control then?


The rent increase guideline for 2024 is only 2.5% increase.


Yup, way below inflation.


While we cannot increase the rent to match with inflation, there are exceptions.

One of the exceptions is an extraordinary increase in municipal taxes and charges.


So what defines “extraordinary”?


Here’s the rule.


If the increase is greater than 150% of the rent increase guideline, then it is extraordinary.


The rent increase guideline for 2024 is 2.5%.


150% of that is 3.75%.


A 10.5% property tax increase is much greater than 3.75%.


So yes, it definitely qualifies to be extraordinary.


This means the landlord can file an application to the Landlord and Tenant Board to increase rent above the 2.5% guideline.


But it will be up to the LTB to decide how much rent the landlord can legitimately increase.


You can see this raises a lot of issues.


If every landlord files an application, then wouldn’t the already backlogged LTB just become flooded and non-functional?


If LTB grants a certain percentage of increase to a particular landlord, then is it going to be the same percentage for all landlords?


If the extraordinary property tax increase would drive an override to the rent increase guideline, why don’t the government just raise the guideline to a more reasonable level across the board then?


I don’t have the answers to any of these questions, but I think they are real issues that the city must answer.


I will be following the movements on the property tax increase very closely, if you want me to keep you posted, subscribe now.






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