Commission on the Reform of Ontario's Public Services

Chapter 18: Revenue Integrity
The current education tax rate-setting practice raises a number of concerns, including the
continued decrease in education tax revenues in real terms. As property tax revenues
decrease as a share of education expenditures, provincial transfers to school boards increase
to offset this decline. Other jurisdictions, such as British Columbia, have recognized the fiscal
challenges associated with this practice, and do not fully offset reassessment impacts when
setting education tax rates. In British Columbia, the business and residential education
property tax rates are reset to increase revenues by an inflationary factor. In fact, tax rate
reductions that allow for some measure of inflationary revenue increase should be considered
in Ontario to maintain a stable level of revenue in real terms.
Business Education Taxes
An additional concern related to education property taxes in Ontario is the wide range of
business education tax (BET) rates across the province. Ideally, a provincial tax rate would
be the same across all regions of the province, similar to the provincial uniform rate for
residential properties.
However, the province continues to set a range of BET rates, which vary across municipalities.
There is no policy rationale for the variation in BET rates other than it being a result of
historical assessment and tax inequities that were in place for many years prior to the province
taking over responsibility for education tax rate setting in 1998.
The variance in BET rates distorts efficient business location decisions and places many
businesses in the province at a disadvantage, therefore having a negative impact on jobs and
the provincial economy overall. These distortions are particularly difficult to justify when there
are large differences between neighbouring municipalities, such as Toronto and the 905
regions. While the tax inequities can be expected to have been capitalized into the value of
properties, it is still important to address these gradually over time.
In fact, in 2007 the province announced a BET reduction plan to address these distortions and
inequities. Under the plan, high BET rates are being reduced to a target rate by 2014, saving
businesses $540 million annually, once fully implemented. The phased-in approach of the BET
reduction plan was designed to minimize potential windfall gains and/or losses associated with
the capitalization of abrupt changes in tax burdens.
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