From Wealth Tax to Policy Tool

Part 1: The Evolving Role of Property Taxation

Property taxation is based on a simple premise: the value of property is an indicator of wealth and, therefore, one’s ability to pay taxes. This idea—that property value reflects financial capacity—makes property taxation a form of wealth tax that has long shaped local taxation in Canada, where municipalities rely on property assessment values to determine property tax liabilities. Those who own more valuable properties contribute more to municipal revenues, funding services from parks to policing. Recently, however, many Canadian cities have taken steps to reposition property taxation from a straightforward wealth tax to a more complex mechanism.

Unlike income, which can fluctuate, property is a tangible and relatively stable asset. While there have always been debates about fairness (consider, for example, the impact of property taxes on elderly homeowners with high-value houses but low incomes), the fundamental link between property value and ability to pay has remained relatively intact. However, new approaches that use property taxes as levers to achieve social and economic objectives have emerged over the past several years. This represents a significant change to the traditional role of property taxation, moving it toward an instrument of policy.

Vacant Home Taxes

Cities struggling with housing affordability have implemented vacant home taxes with the intent of discouraging speculation and increasing the supply of available housing. If a residential property is left unoccupied for an extended period, the owner pays an additional tax. The goal is not primarily to generate revenue but to push owners to occupy, rent, or sell empty units, thereby putting underutilized homes back into the real estate market.

In British Columbia, Vancouver launched its Empty Homes Tax in 2017 after the provincial government amended the Vancouver Charter to give the city this power​. In Ontario, Toronto followed suit with its own Vacant Home Tax on empty residences starting in 2022, and Ottawa implemented a similar vacancy tax around the same time​. Early results show these taxes can raise substantial revenue while changing owner behavior. Vancouver’s Empty Homes Tax generated approximately $39.4 million in its second year (2018), even as the number of taxed vacant properties dropped by 22% from the prior year.¹ Toronto’s first year of the Vacant Home Tax collected roughly $54 million by mid-2023.² These figures, which represent funds that can be reinvested in affordable housing programs, are not insignificant, even if revenue generation is not the main goal.

As the number of properties subject to a vacant home tax steadily declines, other Canadian jurisdictions are taking note. British Columbia’s provincial government introduced a Speculation and Vacancy Tax, which applies an annual levy on homes left vacant in urban areas of the province. While structured differently than most municipal vacancy taxes, its aim is similar: to encourage owners to rent out secondary properties or face a penalty for allowing homes to go unused.

Density-Based Taxation

Certain taxing authorities are exploring the idea of property tax rates that vary based on the density of the development, recognizing the potential impact on city finances and growth patterns. In some cases, denser developments, like apartment buildings, are believed to require more services or infrastructure, historically leading to higher tax rates on multiunit properties. In other cases, cities are looking to lower the tax burden on higher-density housing to encourage more efficient land use and reduce urban sprawl.

Several major municipalities in Canada have traditionally taxed multiresidential buildings (e.g., rental apartment complexes) at higher rates than single-family homes​. In the 2000s, it was not uncommon to find cities with property tax rates for apartment buildings that were nearly double those for detached houses, meaning tenants (via their landlords) paid more, per dollar of assessed value, for the same municipal services​. Over time, reforms have encouraged reducing these gaps, and the idea of using property tax incentives to promote density is gaining traction.

Industry stakeholders in Canada have proposed a land value tax or split-rate tax system—taxing land at a higher rate than the buildings situated on it—to encourage landowners to develop underutilized lots. While no Canadian city has implemented a land value tax to date, the concept is being considered as a tool to address ongoing housing shortages. Proponents suggest that a shift toward density-oriented taxation would curb speculation and promote the “highest and best use” of urban land.

Derelict Homes

Another emerging use of property tax as a policy tool focuses on discouraging property neglect and improving neighborhood vitality. Some Canadian municipalities are introducing derelict tax classes that impose higher tax rates on abandoned, unsafe, or severely neglected properties. The intent behind these tax classes is to address the problem of “urban blight”—vacant, deteriorating buildings that can lower surrounding property values, attract crime, and inhibit community development. By applying a distinct, often much higher, tax rate to derelict properties, municipalities aim to create a financial incentive for owners to address these neglected properties.

In municipalities that have introduced a specific property tax subclass for derelict residential buildings, these properties are subjected to a tax rate that is substantially higher than that applied to occupied, maintained homes. Derelict properties are typically identified through inspections and building condition assessments, ensuring only the most seriously neglected structures are captured by the higher tax class. Other municipalities have explored similar approaches through adjustments to vacant property tax programs or by introducing maintenance standards linked to taxation enforcement. In some cases, these policies are paired with grant or incentive programs to assist owners in rehabilitating older structures, offering both a “carrot and stick” approach.

By targeting neglect and abandonment, cities aim to preserve neighborhood quality, support housing renewal, and promote public safety—all through tools grounded in the property assessment and taxation system.

Short-Term Rentals

A growing number of Canadian municipalities are turning to property taxes as a means of regulating the use of residential properties as short-term rentals. Platforms like Airbnb and VRBO have facilitated a surge in short-term rental activity, especially in high-demand areas, prompting some local governments to respond with targeted taxation measures.

In communities facing acute housing pressures, often in tourist destinations, distinct tax classes are being introduced for properties used primarily as short-term rentals. These properties are taxed at a higher rate than owner-occupied or long-term rental homes, reflecting concerns about the disproportionate strain created by the former’s impact on housing availability, the hotel/accommodation industry, and municipal services. The creation of a dedicated tax category allows municipalities to align taxation with housing policy. As housing affordability continues to dominate policy discussions across Canada, the taxation of short-term rentals is becoming an increasingly prominent part of the municipal fiscal toolkit.

Small Business Subclasses

Property taxation is also viewed as a mechanism to support local economic resilience, especially for small businesses, and some municipalities have begun implementing small business property tax subclasses as a tool to deliver targeted tax relief. Enabled by provincial legislation in several jurisdictions—including Ontario and Alberta—these subclasses allow municipalities to apply lower property tax rates to qualifying small business properties.

Traditional commercial property tax frameworks apply uniform rates to all properties within a nonresidential category, meaning small, locally owned enterprises may pay the same rate per dollar of assessed value as multinational organizations. The small business subclass addresses this disparity by offering a differentiated rate based on specified criteria, such as property size, assessed value, or even number of employees.

Small business subclasses represent a major change in the perception of property tax. It is no longer simply a revenue mechanism but a policy lever to support small-scale entrepreneurship, maintain commercial diversity, and ensure that taxation reflects capacity. With economic resiliency, “shop local,” and affordability continuing to dominate municipal agendas, more Canadian cities may look to adopt this tool to better balance competitiveness with fiscal responsibility.

Conclusion

What began as a straightforward method to fund local services is evolving into a more dynamic policy instrument. Vacancy taxes, as seen in cities like Vancouver and Toronto, illustrate how property taxation can shape market behavior and encourage more efficient use of the housing supply. However, this shift raises important questions. Who ultimately bears the cost of these innovative policies? Are there unintended consequences for investment or affordability? And how do we ensure fairness across a diverse group of property owners and uses?

These questions are central to the next stage of this conversation. In Part 2: The Implications of Property Tax as a Policy Tool, we will examine how these emerging strategies affect municipal finance, market dynamics, equity, and legal governance. As Canadian cities continue to innovate, understanding these broader impacts will be critical to ensuring that property taxation remains a fair, flexible, and effective public policy tool.

Scott Powell
Director, Team Lead, Complex Property Tax
scott.powell@ryan.com

¹ https://globalnews.ca/news/6197311/vancouver-empty-homes-tax-revenue-2019/?utm_source=chatgpt.com

² https://www.costar.com/article/239526789/toronto-triples-tax-for-owners-of-vacant-residential-units