For homeowners property tax is one of the most painful and visible taxes going. Instead of having the tax skimmed off their pay cheques at source, they generally have to cough up hefty installments either monthly or four to six times a year. Alternatively, they can see their mortgage payments swollen even more, if their lender insists on making the tax payments.
Tenants pay property tax, too – arguably at higher rates than homeowners in some municipalities – but landlords build it into their rent. If you can’t avoid it, you can at least understand it.
Here are ten things you need to know about property tax.
1. How is it calculated?
Your municipality takes the assessed value of your home and applies the tax rate. If your home is assessed at $300,000 and the tax rate is 2 per cent, your tax is 2 per cent of $300,000, or $6,000 a year.
2. How is my assessment determined?
A non-profit agency called the Municipal Property Assessment Corporation (MPAC) assesses your property, and sends the owner a notice of its assessment. The assessment is supposed to reflect the price it would likely fetch if you put it up for sale. MPAC tracks real estate sales neighbourhood by neighbourhood so it can put a value on a one-bedroom condo in the St. Lawrence neighbourhood, say, or a four-bedroom detached home in Stouffville. It may reduce the assessment if the home is on a busy corner beside a gas station, or boost it if it’s on a prestigious street backing on ravine.
3. How is the tax rate set?
Your city or town council sets a tax rate through the annual budgeting process. The regional council, if there is one, also sets a tax rate. (Toronto has no regional government, but the other municipalities in Greater Toronto each have both local and regional governments.) Finally, the provincial government sets a tax rate for education. The three rates are added together.
If the local tax rate is 1 per cent, the regional rate is 1 per cent, and the education rate is 0.5 per cent, the total tax rate is 2.5 per cent. The city (or town or township) collects the tax on behalf of all the other governments, so you get just one tax bill.
4. I think my tax rate is too high
There’s not much you can do. Politicians on local and regional councils set property tax rates for their areas, and the provincial government sets a province-wide rate for education. If you don’t like the tax rates, you’ll have to persuade the politicians to change them, or run for office yourself.
5. I think my assessment is unfair
First, you should call MPAC at 1-866-296-6722. If a phone call doesn’t change your mind, you should ask MPAC to send you a list of the assessment on properties similar to yours. There is no fee. You can also send MPAC a list of properties you think are comparable and they will select six properties of their choosing. You can do this in the “About My Property” section of the MPAC website. Your assessment notice should contain the User ID and password you’ll need.
If you still think you’re over-assessed, you can make a “request for reconsideration,” an informal process in which you state your case in writing, and MPAC tries to respond within 60 days. Instructions are on the MPAC website. This is free.
6. I’m still not happy
You have one further avenue, which is appealing to the Assessment Review Board, a tribunal independent of MPAC. This is a more formal process involving a hearing before a board member. You can represent yourself, or hire a lawyer. You must pay a fee of $75. You must have already been through the “request for reconsideration” process, and must file your appeal within 90 days of the mailing date of your request for reconsideration decision.
7. If my assessment rises, do my taxes go up?
Not necessarily. If everyone’s assessment goes up 10 per cent, but the cities and school systems don’t increase their budgets, they should be able to lower their tax rates 10 per cent and still collect the same amount of money. It’s seldom that everyone’s assessment rises by the same proportion, of course. A hot housing market in one neighbourhood may drive up assessments faster in that area than in others.
8. Do businesses pay property tax?
They do. In fact, some business property owners in Toronto have long complained that they bear more than their fair share of the property tax burden.
9. What happens if I don’t pay?
You get charged credit-card type interest on unpaid tax. Toronto, for example, charges 1.25 per cent a month. If you put your head in the sand and continually refuse to pay, the municipality can seize your property and sell it to recoup the taxes, although this is a long and seldom-used process that often takes years. The property owner gets whatever is left over. This doesn’t happen often, but towns and cities do use this power in some cases if payments fall far in arrears.
10. Where does the tax money go?
Property tax goes to local governments to pay for services such as roads, parks, police, fire fighting, ambulance and transit. Municipal property taxes also cover part of the cost of welfare. Some of the proceeds also flow to the public and separate school systems; taxpayers are given the option which system to support.