Differential taxation is a municipal finance approach where property tax rates vary based on geographic area, property type, or service levels received. Common applications include different tax rates for residential, commercial, industrial, and multi-residential property classes (standard practice across Canada), or area-specific rates reflecting different service levels—urban areas with transit, fire hydrants, and sidewalks paying higher rates than rural areas without these services. Some municipalities use special area rates for specific infrastructure like local improvements. Differential taxation can more fairly allocate costs to those receiving services and create policy incentives (lower rates for desired property types). However, it adds administrative complexity, can disadvantage certain sectors, and raises questions about equitable taxation. Provincial legislation governs what differential taxation municipalities can implement.