Study: The relationship between property tax and income

Low-income homeowners pay proportionately more of their income on property tax than their higher-income counterparts. This was true in every one of 342 municipalities examined in a new study.

Taxes for which the proportion of income paid declines as income increases are commonly called "regressive".

A previous Statistics Canada study, based on the Survey of Financial Security, established the regressive nature of residential property taxes. This report, published today in Perspectives on Labour and Income, analyzes property taxation relative to incomes in individual municipalities, using data from the 2001 Census of Population.

This study shows that the regressive nature of property taxation is purely a product of income distribution and the distribution of property values in a given municipality. Property taxes are most regressive in municipalities where homeowner incomes vary widely but property values are relatively homogeneous.

Regressive property taxes cannot be attributed to tax levels, sometimes called "mill rates," set by local governments. Reducing the mill rate in a given municipality would have no impact on the regressiveness of the tax. It would reduce the tax burdens of all homeowners, but the relationship between the tax burdens of low and high income homeowners would stay the same.

Regressive property taxation does not, therefore, derive from the level of taxation, but rather from the fact that it is based entirely on assessed property values regardless of income.

Because both income and property value distributions vary from one municipality to another, the degree of regressiveness of their property taxes also varies. At the lower extreme of regressiveness, the 25% of lowest-income homeowners paid just over twice the amount of tax for every dollar of income as those in the top 25% of the income distribution. At the upper extreme, the tax-to-income ratio for low-income households was up to five times greater.

Two-thirds of the municipalities at the upper extreme were in the census metropolitan areas of Montréal, Toronto or Vancouver.

In contrast, only 15% of the municipalities in the lower extreme were in one of these large urban areas (all in Montréal).

Municipalities in large urban areas often have more regressive taxes because they tend to have relatively unequal income distributions, and/or relatively homogeneous housing prices.

For example, the 25% of highest-income households in Montréal had median incomes 4.4 times higher than the 25% of lowest-income households, but homes with a median worth (as self-reported in the Census) only 1.2 times as much.

In contrast, municipalities in large urban areas with less regressive taxation tended to have more heterogeneous housing prices and/or less unequal incomes.

The study also found that, contrary to an often cited belief, regressive property taxes cannot be attributed principally to seniors with relatively low incomes living in relatively expensive houses. In fact, in most municipalities, low-income people below the age of 65 had equal or heavier tax burdens than their senior counterparts.

Definitions, data sources and methods: survey number 3901.

The article "Property taxes relative to income" is now available in the March 2005 online issue of Perspectives on Labour and Income, Vol. 6, no. 3 (75-001-XIE, $6/$52).

For more information, or to enquire about the concepts, methods or data quality of this release, contact Boris Palameta (613-951-2124; boris.palameta@statcan.gc.ca), Income Statistics Division or Ian Macredie (613-951-9456; ian.macredie@statcan.gc.ca), Public Institutions Division.