Toronto Mayor Olivia Chow, who took office Wednesday, says she is willing to increase property taxes to fund city services. Running a city isn’t free, and there’s plenty of evidence Toronto has become threadbare, even run down.
But for all the talk of the city having one of the lowest property-tax rates in the region – which is true – the picture is complicated by the land-transfer tax.
This tax, implemented under former mayor David Miller, has long been credited with keeping the city afloat and is projected to take in $948-million this year. Since 2008 it has raised about $8.6-billion, and it is not hyperbole to say that Toronto would have faced very difficult choices without it.
Money-raising effectiveness does not, however, alone make a good tax. In fact, the city’s land-transfer tax penalizes – more every year, as home prices rise – home buyers, including younger ones.
It discourages moves to slightly smaller or larger homes, keeping people in properties more suitable for others. And the transfer tax ties Toronto’s finances to a fluctuating asset class, the subject of years of warnings from city staff.
Worst of all, it has allowed two mayors over 12 years to maintain the fiction that they are protecting property-tax payers, while forcing homebuyers to make a large upfront payment that is in reality, if not name, another layer of property tax.
A Globe and Mail columnist nailed the purpose of the city’s land-transfer tax in 2007, before it even existed: “It’s a way to shift the tax load onto others.” The revenue from the land-transfer levies allows the city to keep property-tax rates at politically unthreatening levels.
Over the years, the city has come to rely on land-transfer tax revenues. But it’s time to consider whether that is the fairest way to raise money, and whether the tax should go easier on first-time buyers, many of whom are struggling to pull together a down payment.
Toronto is the only municipality in Ontario to levy a land-transfer tax, in addition to the one charged by the province. Toronto’s tax uses an escalating rate tied to purchase price; someone buying a $1-million home today would pay about $16,500 to the city. They would pay as much again to the province, for a total of $33,000. If the buyer has not previously owned a home, they would be rebated the tax on part of their purchase, with the total falling to $24,500.
This is not to let the province off the hook. Doug Ford’s government uses the housing affordability crisis as the excuse for everything it does, and somehow reducing its own land-transfer tax never comes up. But given Toronto’s unique position of having its own land-transfer tax, and its status as one of the country’s most expensive cities, it deserves special focus.
Consider again the person buying that $1-million home. Imagine that they are a first-time purchaser. If they hold the home for seven years, they can expect to pay approximately $36,000 in total property taxes to the city, using today’s effective rate of 0.51 per cent, a figure that does not include the province’s education levy. However, add the land-transfer tax and their city property-tax bill jumps to $48,000 over seven years. This is the equivalent of 0.69 per cent per year and a 34-per-cent premium over their official property-tax rate. Without the first-time buyer discount, the implicit tax hike is even higher.
(This calculation does not take into account the unknown amount by which property taxes may rise over those seven years; nor does it factor in the savings if buyers had not had to pay mortgage interest on the amount of the land-transfer tax.)
Don’t want to pay that much? Be fortunate enough to have bought before 2008. Or don’t settle in Toronto – a terrible message for the city to send.
Mayor Chow has called a special meeting in August to discuss the city’s long-term finances, at which municipal staff are expected to provide advice on ways to raise money, in addition to a possible increase in property taxes. City council has been through this exercise before, typically balking at all proposals. The options will likely include such old favourites as a commercial parking levy and a municipal sales tax.
Councillors should not only look at layering on new costs but assess also whether existing ones make sense – starting with the Toronto land-transfer tax.