Let us do a quick financial exercise. How much would you sell your house for? Now check out your property assessment on your most recent tax bill. If you are like most home owners, you will see that the current value of your home is much higher than the number stated on your invoice.
Yipppee! Right? On the surface, you might think you are getting a tax break. Although the value of homes has skyrocketed in recent years, the assessment, a key component of the tax-setting formula, has remained unchanged since 2016.
Thank you, Ontario government for continuing to delay assessment updates, which traditionally had been carried out by the Municipal Property Assessment Corporation (MPAC ) every four years.
For the last eight years, municipalities have been using outdated assessments to calculate their levies.
The last province-wide assessment update was scheduled for 2020, but the government decided to postpone the update because of the COVID-19 pandemic.
The worldwide health crisis had a silver lining for those who were selling their homes.
The real estate market was insanely overheated during the pandemic. Home sale prices doubled in some parts of Eastern Ontario, as city dwellers fled urban centres, buying up large properties, marvelling at how cheap land was in this part of the world.
The median sale price of a residential property has increased an average of 96 per cent across the province since 2016, and by 90 per cent in Eastern Ontario, according to MPAC figures.
In the area served by the Cornwall and District Real Estate Board, the average price of a home sold in 2016 was in the range of $150,000 to $200,000. The exodus to the country has slowed in the last few years; with higher interest rates, the real estate market has cooled down.
Yet, the average price of homes today is still high compared to the average from eight years ago. The average price of homes sold in July of this year was $424,285, a decline of 4.3 per cent from July 2023. So far this year, the average price has been $420,337.
The government of Ontario has announced there will not be a reassessment for 2025 as it undertakes a review of the property tax system. It could be 2026 before updated assessments will be used to prepare tax bills.
Nobody likes to pay more taxes, but it is preferable to get several small hits over an extended period of time, rather than getting a full body blow in one fell swoop.
Should taxpayers be prepared for sticker shock when the new, accurate values kick in?
Perhaps. An increase in property assessment does not necessarily translate into an increase in property taxes. “When a province-wide assessment update occurs, the most important factor is not how much your assessed value has changed, but how your assessed value has changed relative to the average change for your property type in your municipality,” says MPAC. If your assessed value percentage increase is higher than the average for your property class, your taxes will likely increase. If your assessed value is up 15 per cent and everyone else’s assessment in your property class is up by only five per cent, expect to see a hike in your bill. If it goes the other way, congratulations, your property taxes will probably decrease.
To establish a property’s assessed value, MPAC analyzes sales of comparable properties in the area. In addition, it looks at all of the key features that affect market value. When assessing residential properties 200 different factors are considered, however five major factors account for approximately 85 per cent of the value: location, lot dimensions, living area, age of the property, adjusted for any major renovations or additions, and quality of construction.
Since 2016, the total value of properties has increased, so municipal treasurers ought to be champing on the bit to collect all that richesse. All that money is sitting out there.
However, “Annual property assessment increases are revenue neutral, which means they have no impact on the total property tax amount that a municipality might raise. Rather, these changes provide for a redistribution of property taxes within a municipality, based on the value of the property owned,” says MPAC.
Yet, since they are constantly decrying a “debt crisis,” cash-strapped municipalities would surprise nobody if they tried to make up for lost potential revenues, and used higher property values to replenish their coffers.
The Association of Municipalities of Ontario has expressed concerns that further delays in assessment updates will compound uncertainty for residents and businesses. Outdated assessments are inaccurate, increase volatility, and are not transparent, the AMO states.
The province says that in order to maintain stability, updates must be postponed until the tax system review is complete.
But – surprise! – the current tax-setting mechanism is not fair.
The unseen consequence of frozen assessments is that tax bills are based on obsolete numbers. The owners of properties that have soared in value since 2016 are paying disproportionately low taxes for their properties. That means that other taxpayers, whose properties have not increased dramatically, are carrying more than their fair share of the fiscal burden.
Much has changed since 2016. It does not make sense that our tax system does not reflect today’s reality.
