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Tax policy

Municipal taxation – Overview

Property taxation is the primary way that Municipalities raise funds to provide services. In Ontario, property taxation is regulated through the Municipal Act, 2001 and supporting regulations. Municipalities are required to levy property taxes on all real property, which includes land and improvements.

Tax classes

Property tax classes are assigned to properties or portions of a property based on the property's use as defined in Section 3 of the Assessment Act.

Ontario has eight mandatory tax classes that all Municipalities must have at a minimum:

Mandatory classes

  • Commercial
  • Residential
  • Industrial
  • Multi-residential
  • Pipeline
  • Farmland
  • Managed forest
  • Landfill

Optional classes

There are an additional six optional classes that Municipalities can choose to adopt to define property use further:

  • Shopping centre
  • Parking lots and vacant land
  • Office building
  • Large industrial
  • New multi-residential
  • Professional sports facility

Optional subclass

There are eight optional subclasses that Municipalities can choose to adopt even further to define property use:

  • Commercial excess land
  • Industrial excess land
  • Industrial vacant land
  • Commercial small scale on-farm business
  • Industrial small scale on-farm business
  • Farmlands pending development class I
  • Farmlands pending development class II
  • Small business 

Ottawa has adopted all six optional classes and eight optional sub-classes to have the highest property use definition and promote property taxation equity. Council can make changes to the optional classes adopted through the annual tax policy.

Tax ratios

What is a tax ratio?

Municipalities in Ontario have the authority to apply differential taxation rates to different property classes through tax class ratios. A tax ratio is the proportion by which a class or sub-class tax rate compares to the residential class tax rate, which has a base ratio of 1.0. For example, a property with a tax ratio of 2 would pay twice the municipal tax amount as a similarly valued residential property. These ratios allow different tax burdens between the different property classes.

Why do tax ratios exist?

Ratios allow municipalities to manage the shifting of the property tax burden between classes. Annual tax shifts happen between classes due to different rates in property assessment values across different classes. The City historically adopts ratios that mitigate tax shifting and keep the tax burden the same in each class.

What are the current tax ratios?

Below are the 2021 tax ratios as approved by Council:

Property class Tax ratio
Residential 1.00
Multi-Residential 1.39
New Multi-Residential 1.00
Farm 0.20
Managed Forest 0.25
Pipeline 1.70
Commercial 1.84
Office Building 2.28
Parking Lots and Commercial Vacant Land 1.24
Shopping Centre 1.48
Professional Sports Facility 1.84
Industrial 2.52
Large Industrial 2.16
Landfill 2.76

Mandatory subclass ratios

Provincial legislation allows the City to set the tax ratios for excess commercial and excess or vacant industrial land as a percentage of the applicable class tax ratio. Council has approved the adoption of the following tax ratios for the mandatory property subclasses:

Property subclass Tax ratio
Commercial Excess Land 70% of the applicable commercial property class tax ratio
Vacant Industrial and Excess Land 65% of the applicable industrial property class tax ratio
Small Scale On-Farm Business 25% of the applicable commercial/industrial property class tax ratio
Farmlands pending Development Class I 75% of the residential property class tax ratio and the corresponding tax rate percentage reduction for the awaiting residential, commercial and industrial property tax classes
Farmlands pending Development Class II No tax rate

Property tax distribution by class

While there are eight broad tax classes, more than three-quarters of Ottawa's property value is in the Residential tax class, accounting for 67% of total property tax revenue. The Residential, Commercial and Multi-Residential broad classes make up 98% of the total taxes levied. The table below outlines the proportion of property assessment and property tax by broad class:

Broad class Assessment Taxation
Residential 77.9% 67.3%
Commercial 15.0% 23.7%
Multi-Residential 5.9% 7.0%
Industrial 1.0% 1.8%
Other 0.2% 0.2%

How are my property taxes calculated?

There are three components used to calculate the amount of property taxes you pay:

  • Assessed value of property
    The assessment value of a property is determined by the Municipal Property Assessment Corporation (MPAC). The City does not determine assessment values.
  • Municipal tax rate
    Tax rates are determined through calculations, which involve the budgetary tax levy requirement approved in the budget setting exercise, the total current value assessment by class, and tax policy effects.
  • Education tax rate
    The annual education tax rates for all Ontario properties are set by the Province and reflect the overall provincial reassessment changes by class.

Your residential property taxes are calculated using this formula:

  • Assessed value x municipal property tax rate = amount of municipal property tax
  • Assessed value x education tax rate = amount of education property tax
  • Municipal property tax + education property tax = your property taxes *

*Please note that, if applicable, other charges such as local improvements, municipal drains or business area improvement charges might be added to the tax bill.

Will the significant rise in real estate prices increase my property taxes?

To determine a property's assessed value, MPAC conducts a province-wide reassessment every four years to update the assessed value of all Ontario properties. The last assessment was carried out in 2016, in which all property owners received a Property Assessment Notice. The assessed property value is then phased in over the four-year cycle, with the last cycle being 2017 to 2020. The Ontario government has postponed the planned reassessment that was scheduled in 2020 to next year. This means that assessments for the 2021 and 2022 taxation years will continue to be based on the same valuation in effect for the 2020 taxation year unless there have been any physical changes to the property. 

A significant increase in property value does not automatically translate to a property tax increase. Municipalities cannot benefit from market value increases. The City of Ottawa adjusts the baseline tax rates downward to account for overall assessment increases and collect the same revenues. If a property's annual assessment value increase is higher than the average of all properties in the same class, the property will see a higher than normal tax increase. Conversely, if a property's assessment value increase is less than the average of all properties in the same class, the property will see a lower than normal tax increase. If all properties were to increase the same amount, there would be no difference in their property tax amount, outside of the annual increase approved by Council if there have been no changes to the property.

Check out this short video about residential property taxes: How your property taxes are calculated:

 

What you get for your property taxes

The City of Ottawa provides many vital services to residents each day, which directly impacts the quality of life that residents expect. One-quarter of a residential property tax bill is effectively set or mandated by the Province. Education taxes are set by the Province and collected by the City. Also, the City is required to administer Provincially mandated programs such as employment and financial assistance (Ontario Works), long-term care and affordable housing.

See below to where your property taxes went for every $100,000 in assessment in 2021:

  Urban Area Rural with Reduced Transit Service Rural with Para Transpo only
Provincial Education $153 $153 $153
Provincially Mandated Programs $91 $91 $91
Conservation Authorities $7 $7 $7
Transit & Para Transpo $186 $58 $14
Police $156 $156 $156
Capital Financing $123 $123 $123
Roads & Traffic $99 $99 $99
Fire $84 $45 $45
Parks/Recreation/Culture $75 $75 $75
Program Support $72 $72 $72
Library $23 $23 $23
Planning/Economic Dev/Environment $15 $15 $15
Paramedics $19 $19 $19
Waste Diversion $12 $12 $12
Total $1,116 $949 $905

Service description

Provincial education:

The provincial government sets the rates that fund the education system in Ontario.

Provincially mandated programs:

The Province requires the City to pay for social service programs such as: social assistance, child care services, social housing, public health and long-term care, and to pay for assessment services provided by MPAC.

Conservation authorities:

The City funds three watershed Conservation Authorities (Rideau Valley, Mississippi Valley and South Nation).

Transit and Para Transpo:

Funds public transit services based on your service delivery area.

Police:

The Ottawa Police Services Board provides residents with protection and law enforcement services.

Capital financing:

These are costs associated with the repayment of borrowed funds along with funding of capital projects.

Fire:

This rate is set according to your service delivery area for fire prevention, suppression and rescue operations.

Roads and traffic:

The City maintains its road network and traffic control systems.

Program support:

This includes functions such as: City Council, City Manager's Office, Financial Services, City Clerk and Solicitor, and Information Technology.

Parks, recreation and culture:

This includes recreational programs and maintenance of recreation facilities, parks and sports fields.

Waste diversion:

Funds recycling waste diversion and the City's landfill.

Library:

Supports reader and collection services, and virtual services through multi-service points.

Paramedics:

Funds the provision of pre-hospital emergency patient care.

Planning/economic development/environment:

Funds the provision of planning services that guide growth and regulate development and the delivery of environmental and economic development programs.

For a full description of the City's budget please refer to the City of Ottawa budget.

Descriptive video: How your property tax is calculated

Okay, I want to explain to you how your property taxes are calculated based on how much your home is worth. Imagine there is a town that only has three homes. And they're each worth a different amount. The total cost to provide all of their town's services is $1000. This is collected through property taxes. Each home owner pays property taxes based on how much their home is worth. So, the value of all the homes are added up and divided by the town's cost. Which gives us the tax rate. This tax rate is applied to all the houses to get enough money to pay for all of the services. So, each home owner pays according to how much their house is worth. Every four years, the houses are reassessed. Let's say all three properties have gone up equally, in value. If we go back to our calculation, the total cost of services hasn't changed, but the total property value has increased. When this happens there will be a decrease in the tax rate. Now, when we apply that new rate on all the homes, everyone still pays the same. Let's recap. One. Property taxes are based on what a home is worth. If reassessments all increase equally, then everyone pays the same taxes as before. Now, let's say another four years has gone by and these homes are reassessed. During this time, the house on the right became more valuable in the market than the other two. Okay, so, time for a little more math. The total value of all the homes have increased, which means the town has to calculate a new tax rate. With this new tax rate, the first two homes will actually pay less than the home on the right that was reassessed at a higher value. Since the cost of services hasn't changed, the town doesn't need to collect more property taxes. However, since property taxes are based on a home's value, those taxes could potentially go up or down, based on the rest of the homes. So, what happens when the cost to provide services goes up? Well, it means more property taxes need to be collected from every home and a new tax rate is calculated. To get the new rate, we take that amount that the town now needs and divide it by all of the property values. The new rate is applied to all the homes and now everyone has to pay the new tax amount to continue to fund all of the services. So, let's review. One. Property taxes are based on the value of a home. When homes are reassessed equally, each home owner will pay the same amount, proportionately, as before. Two. When homes are reassessed at different values, each homeowner will pay a different amount proportionately, based on how much their home increased in value. Three. When the town's cost to provide services increases – a property tax increase – then, everyone pays their share, proportionately, across the board. And that explains the relationship between property value and property taxes.