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Navigating the Property Tax Hike: Strategic Insights for High-Net-Worth Families and Family-Owned Enterprises

In an economic climate where inflationary pressures are already squeezing margins, Toronto’s proposed 10.5% property tax increase adds another layer of complexity for high-net-worth families and family-owned enterprises. Let’s unpack the ramifications of this fiscal move and explore strategies to mitigate its impact.

Understanding the Property Tax Hike:

The proposed tax adjustment far surpasses the modest increases of previous years, positioning it as a financial curveball for property owners. The prospect of this surge to 16.5% contingent on federal refugee support funding only deepens potential concerns.

While the focus is on the rate of the tax increase, it’s essential to consider the tax base — the actual value of properties — which has significantly increased in Toronto over the past two years. A report by Properly indicated that overall, Toronto home values increased by 21% over the past two years, with a new median valuation of $904,518​​. The average price of a detached home in the GTA was $1,418,323 in December 2023, marking a 2% increase year-over-year​​. Moreover, the City of Toronto outperformed many neighboring cities in the GTA, with an average selling price of $1,062,914 and home prices up 4% year-over-year​​.

This increase in property values suggests a substantial growth in the wealth of property owners on paper. However, it also means that the proposed tax hike could have a more significant dollar impact on cash flow than the percentage alone might imply.

This added financial burden comes at a time when family-owned businesses are already navigating the challenges of an inflationary market. The increased tax could force these enterprises to raise prices or cut other costs, such as reducing their workforce, at a time when the economy is grappling with rising unemployment rates.

Impact on High-Net-Worth Families:

For affluent families with substantial real estate investments, this hike is not merely a line item adjustment. It represents a significant financial outflow that could necessitate operational changes in family-owned enterprises. At a time when the cost of living and business expenses are on the rise, an additional tax burden could compel these enterprises to make tough decisions – from increasing product prices and rents to potentially downsizing staff – in an already unstable employment market.

The Counterargument: A Call for Property Tax Reduction:

A strategic reduction in property taxes could have served as a buffer against inflationary pressures, fostering a more stable economic environment for both consumers and businesses. By maintaining more cash within enterprises, such a move could encourage investment and employment, which are critical during economic downturns.

Strategies for Mitigation:

  1. Re-evaluate Investment Portfolios: Diversify investments to balance any potential downturns in the real estate market due to increased carrying costs.
  2. Cost Control: Review operational expenses to identify efficiency gains that can absorb some of the tax increases.
  3. Engage in Strategic Planning: Consider long-term financial planning that accounts for potential increases in operating costs, including property taxes. This might involve restructuring, reorganizing, or reassessing the scale of operations.
  4. Leverage Tax Credits and Incentives: Stay informed about and take full advantage of available tax credits, deductions, and government incentives that can offset the increased property tax burden.
  5. Consult with Tax Professionals: Engage with tax advisors specializing in high-net-worth family taxation to explore bespoke tax planning opportunities that align with your financial situation.

As tax professionals, Shajani CPA understands the complexities you face with these changes. While the proposed property tax hike aims to address municipal financial challenges, it presents a significant concern for our high-net-worth clients and their enterprises. Our role is to guide you through these economic shifts, ensuring your ambitions remain within reach. By adopting a proactive approach and seeking specialized tax and financial advice, we can navigate this together, maintaining the resilience and prosperity of your family’s legacy.

Remember, when it comes to safeguarding your wealth and the success of your family enterprise, strategic tax planning is not just beneficial; it’s essential. Our team provides you with the expertise and guidance needed to steer through these fiscal changes effectively.

This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2024 Shajani CPA.

Shajani CPA is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning services.

Nizam Shajani, Partner, LLM, CPA, CA, TEP, MBA

I enjoy formulating plans that help my clients meet their objectives. It's this sense of pride in service that facilitates client success which forms the culture of Shajani CPA.

Shajani Professional Accountants has offices in Calgary, Edmonton and Red Deer, Alberta. We’re here to support you in all of your personal and business tax and other accounting needs.