What Toronto’s proposed property tax increase means for renters

Editors note: This article has been corrected to reflect the accurate yearly rent increase structure for above guideline increases.

A total 10.5 per cent property tax increase has been proposed for Toronto, and the impact is likely to be felt by both homeowners and renters alike.

In a press conference on Jan. 10, budget chief Shelley Carroll said the nine per cent increase to property taxes and 1.5 per cent increase to the City Building Fund — a levy that supports capital projects — is due to a $1.8 billion shortfall resulting from chronic underspending in city services.

The increase marks the biggest hike in property taxes since the city’s amalgamation more than 20 years ago.

Real estate expert Dr. Murtaza Haider, professor of real estate management at Toronto Metropolitan University, says if landlords see a significant increase in cash outflow, it follows that they will look to recover some of it from tenants.

“Any increase in ownership costs finds its way, eventually not immediately, to renters,” he says.

“At the same time, it depends upon the increase. If the increase is thousands of dollars, all those thousands of dollars will not be passed on to renters, some of it will be assumed by the homeowner.”

While the increase seems like a big number, Haider says it does not represent a significant jump in operating costs for landlords.

“If you just look at the numbers — average increase per household is not in thousands of dollars. And therefore, I would assume that the renters may not see a big significant demand to pay more in rents. I’m not expecting that,” he says.

The average household is expected to pay $30 more per month in property taxes.

Nevertheless, as per the Residential Tenancies Act (RTA), landlords of rental units that were occupied for residential purposes before Nov. 15, 2018 (rent controlled) can apply to the Landlord and Tenant Board (LTB) for a rent increase above the yearly provincial guideline cap under certain circumstances.

An “extraordinary” increase in the landlord’s costs for municipal taxes and charges is considered an acceptable reason under this legislation.

An increase is considered extraordinary if it is more than the guideline during the year the application was submitted, plus 50 per cent of that guideline.

For example, the guideline for rent increases in 2024 is 2.5 per cent and the following calculation is used to determine if the tax increase can be considered “extraordinary”:

50 per cent of current guideline: 2.5 x .50 = 1.25
Current guideline plus 50 per cent: 2.5 + 1.25 = 3.75

As the proposed tax increase is greater than 3.75 per cent, it would qualify as “extraordinary,” and landlords could legally apply for an above guideline increase (AGI) in rent based on this fact.

“Right now, to put it in perspective, this is not that common. Generally people do not ask for these types of increases, but I also believe a 10.5 per cent property tax increase is also not very common,” says Ryan Manilla, managing lawyer at Legal Solutions Law Firm.

He therefore opines that there will be some increase in landlords applying to the LTB to grant an above guideline increase this year.

“So really the question is, what’s a reasonable increase above that 2.5 per cent? If property taxes go up 10 per cent, I think most landlords would probably increase five to six per cent, roughly 50 per cent of their increase,” he says.

Currently, landlords can request a total 9 per cent increase above the provincial cap. Unlike other reasons for an AGI, a rent hike requested due to a spike in property taxes does not need to be split up over three years. It can be taken all together in the first year, so renters could potentially see an initial rent increase notice of 11.5 per cent.

As a landlord himself however, Manilla says he doubts smaller landlords will bother with the paperwork and the LTB hearing that follows.

“I have multiple properties in Toronto and in Vaughan. So I asked myself would I do something like this? My initial thought was probably not. It’s not worth the aggravation. The extra, 50-75 bucks a month is probably not worth my time doing the notice, then the application, then going to the board for the day,” he explains, adding that the LTB is grappling with a huge backlog and hearings take several months to be scheduled.

However, he says property companies with hundreds of rentals might see it differently.

“[These companies] that have on-staff lawyers in-house, there’s really no downside. They’re paying them a salary anyway .. it very well might be worth it for them to do it,” he says.

While potential rent increases may feel particularly burdensome in the midst of the city’s housing crisis and soaring cost of living, Haider believes that in the long run, renters also benefit from property tax increases.

“It’s not an income tax, it’s a property tax, which means that the money will be used to provide services to whoever lives on that property … so it’s more of a user fee” he explains.

“So if there’s slightly more tax, most likely you’ll get slightly better service. May that be transit, may that be waste collection, may that be parks and recreation maintenance. So see it as an investment in your community and being a tenant, you are receiving those benefits because these are the services that are not restricted to landlords only. They are afforded to all who live in the city.”

He adds that the sticker shock some might be feeling is a result of negligible increases over the last several years. He explains that when a city needs to generate revenue as is the case in Toronto, there are only a handful of ways they can do so.

“For every dollar that we pay in taxes, roughly 10 cents go to the municipality, the remaining 90 cents go to the federal government and to the provinces. So municipalities are fairly cash strapped, fairly limited in their ability to raise their own revenue and the primary mode or tool at their disposal is property tax,” he says.

As such, Haider feels the best way for landlords to approach the issue with tenants is have a frank and open discussion with them.

“Rather than just asking the tenant [for more rent], I think a conversation should take place first,” he says.

“A landlord assumes a lot of responsibility and a lot of expenses in providing that rental service to the tenant … and I think the goal should be to have a sharing arrangement between the two and a candid conversation if and when this increase in property taxes are realized,” he says.

Manilla agrees, saying that with both landlords and tenants feeling the effects of rising costs, a compromise is probably best.

“I’ve actually had a pretty good response of just negotiating with tenants,” he says.

“Making a deal is certainly in both parties best interest if possible.”

However if either the tenant or landlord feels the need to escalate the matter to the LTB, he strongly suggests getting legal representation.

“Sometimes it’s a very difficult conversation and there’s no other way to deal with it, but going to the board,” he says.

“I think it’s very, very important [to get legal advice]. I’ve seen [people self-representing] at the board who lose applications that they frankly would’ve won due to a [lack of] a legal perspective that would’ve made them successful and just because they weren’t represented is the reason they lost the claim.”

With files from Meredith Bond