Under the rules for setting tax rates applicable to different categories of property, non-residential properties may be taxed at a higher rate than that applicable to residential properties. Many existing studies suggest that high rates on non-residential properties are both unjustified and detrimental to local economic development. This report examines the practice of taxing different classes of property at different rates among Canadian municipalities using financial data from 171 Canadian municipalities with populations of 25,000 or more. The authors show that the observed rate ratios ranged from 1.1 to 4.6 for the year 2020. This practice varies by province and is more pronounced in the largest metropolitan areas.

Using multivariate statistical analyses on the set of 171 municipalities covering the years 2010, 2015 and 2020, it has not been possible to find a negative relation between the ratio of non-residential to residential rates and the evolution of the relative share of non-residential property value in the municipal tax base. No negative impact on local economic development was found. The analyses also show that non-residential properties have a significantly higher impact on municipal spending per dollar of value than residential properties.

These results suggest that the practice of varying rates in Canadian municipalities with 25,000 or more inhabitants is not unjustified and does not have a significant negative impact on local economic development.