Tax Me Baby One More Time

Understanding Property Taxes

By Mirjana (Mira) Markovic

Let’s be honest, no one throws a party when their property tax bill arrives. It is one of those unavoidable parts of our life journey. A bill that you did not ask for but cannot ignore. While property taxes are not as thrilling as a rollercoaster ride at Canada’s Wonderland, they play a crucial part in owning real estate. Understanding how property taxes are assessed will save you headaches and confusion. Therefore, since we are all obligated to pay them, we might as well get acquainted with them. So, grab your coffee (or something a bit stronger) and let us take a closer look at the world of property taxes.

Assessing and Taxing Authorities

Assessment Authority

Ah, The Municipal Property Assessment Corporation (“MPAC”). The friendly neighbourhood organization that determines how much your property is worth, whether you agree with them or not. This particular entity carries out the assessment function in the Province of Ontario, and every municipality is a dashing club member. Specifically, MPAC calculates and determines the assessment value of a property subject to various property tax classifications, while the municipalities levy the taxes on such values.

Taxing Authority

As I indicated above, the municipalities set tax rates to be applied to the assessments provided by MPAC. The tax rates are two-tiered and include both the municipal and education portions. The municipal portion sector includes but is not limited to transit, garbage collection, etc., while the education portion sector helps to fund the elementary and secondary education system in Ontario. 

The Assessment Values

Residential

So, how does MPAC determine what your property is worth? Well, not through a dartboard or blindfold, but something called the Current Value Assessment (“CVA”). The CVA is what your property would sell for on the open market if you were selling the property, and if your strange neighbour’s lawn artwork does not scare off potential buyers. MPAC reviews the physical factors such as the location, square footage, age, renovations, and for what price point similar properties have sold nearby. It is all about appearances, the neighbourhood appeal, and what someone is willing to commit to financially.

Multi-tenanted Properties

Such properties are assessed using the income approach to valuation, which is different than the CVA system. MPAC looks at how much money the property generates (i.e. rents collected from the tenants minus expenses such as maintenance, taxes, and vacancy rent) to figure out what investors expect to earn, and comes up with the value by applying the capitalization rate. MPAC looks at your investment property like a business, and the more money that it generates, the more likely you are to pay higher property taxes.

Commercial Properties

Such properties are also assessed in the same way as multi-tenanted properties via the income approach valuation system, where your property is assessed based on how profitable it is and not how pretty it is.

Assessment Appeals

So, you opened your assessment and nearly spilled your coffee. Now what? I would like to welcome you to the wonderful world of assessment appeals. A property owner may appeal the current value assessment through the Assessment Review Board (“ARB”) on the basis that it is too high or if the property owner believes that the property was incorrectly classified. The property owner is required to complete the Request for Reconsideration (“RFR”), which basically asks MPAC to take a second look. This is a prerequisite to appealing to the ARB.

For residential properties, the RFR requires filing 120 days from the date that the Property Assessment Notice is received. You will be obligated to provide evidence such as recent sales of similar properties, issues with the property, or proof that your income does not match MPAC’s expectations (for income-generating properties). If MPAC continues to remain firm on the initial value once the RFR is filed, you can proceed to ARB. Think of ARB like a Small Claims Court for property values, but with fewer lawyers and more spreadsheets.

Issues in Real Estate Transactions

In most real estate transactions, lawyers order tax certificates. Such a document will determine if taxes are in good standing; however, the following are scenarios where additional taxes could be levied, which are not disclosed on the tax certificate:

• Pending appeals at the ARB;
• Supplementary Assessments that could increase taxes, and
• Potential apportionment of taxes if land were subdivided from a larger parcel.

Purchasers should inquire whether there are pending or potential claims, as taxes run with the land; therefore, whoever is on title at the time the tax bill is issued will be liable to the municipality for payment. On the opposite side of the spectrum, sellers should ensure that a purchaser remits to the seller any refunds that relate to overpayment of tax made by the seller. With this said, both the purchasers and sellers should speak to their respective lawyers about potential property tax issues that may arise out of a real estate transaction.  

Conclusion

When the next reassessment will occur is uncertain. The Government has already postponed the reassessment twice to maintain stability for taxpayers and municipalities. At least that is what they argue. We are currently living with the property assessment values from 2016. Whether that is in the best interest of the taxpayer is subject to debate, as much has changed since 2016.

At the end of the day, property taxes are not exactly the life of the party, but they fund the roads we drive on, the schools kids learn in, and the firefighters that show up when your oven experiment goes wrong. Understanding how property is assessed, whether it is your family home, investment property, or commercial building, can assist you in spotting mistakes, asking the right questions. If the assessment is a little too optimistic, remember that you are not stuck. You have the right to appeal and challenge the valuation, nicely, of course.

I hope that this article has provided you with some helpful information. If you have any questions, please do not hesitate to contact me directly at mira@sorbaralaw.com.