Property tax is a recurring fee collected by municipal governments from property owners. Property tax rates vary by province and region, and are based on assessments of the market value of land or a building, often a residential home.
What is property tax?
Property taxes are one way that local governments generate revenue. This tax is collected by local governments from residential, commercial and industrial property owners. Funds via property tax are used to pay for a range of public services in the community, including police and fire stations, schools, roads, garbage collection, snow removal, sewers and more.
» MORE: Understanding land transfer taxes
Who pays property tax in Canada?
If you own any type of real estate in Canada, or rent a home, you are paying property taxes. Homeowners pay taxes directly to the municipal government. Renters pay property tax as a portion of their monthly rent.
What is included in property taxes and how often they are paid will depend on the municipality in which you live. Payments might be made annually, semi-annually or quarterly. Your property tax bill may include a breakdown of where your money is going. For example, in Toronto, the overall property tax includes three different fees.
- City tax.
- Education tax.
- City building fund.
Canadian property tax rates
Individual property tax amounts are calculated based on how much your house is worth and the municipal property tax rate. Property values are typically assessed by a government authorized entity on a regular basis: in Ontario it’s once every four years, while in Alberta it’s yearly.
Every municipality across Canada determines its own annual property tax rate. Typically, this number falls between the range of 0.5% to 2.5%. Note that the size of your property, what you paid for it, and your income play no role in how much you will pay in property taxes.
Examples of some 2021 property tax rates in Canada:
|Province||City||2021 Residential Tax Rate|
|Prince Edward Island||Charlottetown||1.67%|
Let’s say you have a home in Ottawa, Ontario and the market value of that home is $500,000, for example. You would multiply $500,000 by the current residential tax rate (1%) to get $5,000, which is approximately how much you would have to pay in property taxes for the year.
Note: For the most current information about tax rates in your province, territory or city, consult your local government website.
How to pay property your taxes
How often you have to pay property taxes will vary by municipality. When it comes to actually paying those taxes, you will typically have two options.
- Pay your property taxes through your mortgage.
- Pay the municipality directly.
If you choose to pay your property taxes through your mortgage, your lender makes the required payment on your behalf and then adds a fee to your mortgage payments. To do this, your lender will take the annual property tax owed, divide it by 12, and add that amount to your monthly mortgage payments.
If you choose to pay the municipality directly, the responsibility is on you to remember to pay the property taxes on time. You will receive a property tax bill by mail and will typically have the option to pay by phone, mail or online. You may also be able to set up pre-authorized payments with your financial institution.
However, in some situations, homeowners won’t have a choice and will have to combine their property taxes with their mortgage. This may happen if you have less than 20% equity in your home (due to making a smaller down payment) or you are a first-time homebuyer.
In these instances, the mortgage lender will most often require that you include the property taxes with your mortgage as a form of protection on their behalf. Lenders want to ensure that you don’t default on property taxes, which could result in a lien against your home.
What if I can’t pay my property tax?
If you are having difficulty paying your property taxes, get in touch with the Canadian Revenue Agency. They can help you find a payment solution. You may be able to set up partial payments or come up with an alternate payment schedule. Make sure you get in touch right away, before you become significantly delinquent and the province begins collection action.