Property Taxes

By Marcia Luke

Property tax. What is it and why do we have to pay it? If you own property, you are expected to pay a tax determined by the value of that property. And every year a number is provided that determines what percentage of your home's value you will be expected to pay in taxes. Not too difficult, right? However, it can get a little more complex than that.

According to David Fleet, a lawyer with property tax specialists Poole Milligan, simply determining the value of a home is the hardest part. That job falls to the Municipal Property Assessment Corporation (MPAC), which has the lofty task of assessing the current value of every property in Ontario. This assessment occurs at various intervals, but for example's sake, the values for 2004 and 2005's tax years come from an assessment made in 2003. The next assessment will be performed this year for next year's property taxes.

"Request the basis of Current Value Assessment (CVA) to find out if the value of the property is something close to what you bought it at," says Fleet. The value is supposed to be determined based on an arm's length transaction between a willing seller and a willing buyer, but because MPAC can't possibly physically inspect every property, they've devised a system that attempts to take into account all the factors that might affect the value of a home.

"MPAC asks the developers of new homes and condos for their sales transaction records," he adds. "Then they match up the sales price with the known physical dimensions and qualities of the property."

Factors taken into account can vary from location to lot size, quality of construction, number of bathrooms, type of heating system, or whether or not there's even a swimming pool on the premises. This will also help to determine the value of other homes in the neighbourhood or buildings that are about to come on the market. This is called the Sales Comparison Approach.

"This system works well in a new subdivision when all the homes are similar," Fleet says, "but when you have heterogeneous properties like cottages or houses that are older there are differences to take into account that might not be included in the list of factors."

For example, things that might make the market value of your home increase or decrease?like having an interior designer redecorate or perhaps, industrial development next to your home might not be taken into account by MPAC. With condominiums in particular MPAC tends to look inside the building, but not outside.

One housing area where this system might not work ideally is at the upper end of the market. For instance, what matters to a buyer at $300,000 is different from a buyer at three million dollars. And if an assessment is off the mark, it's for a number of reasons that aren't necessarily the fault of MPAC.

The housing market is strong right now, driving prices up which will affect a home?s value, but not until the next assessment. This year, your assessment may seem low because it was evaluated in 2003 and the value has risen dramatically since then. It will balance out eventually.

"Assessments are from some point in the past," Fleet explains. What this means is that once your home is assessed, the taxes for next year will correspond even if the value of your home has dropped some, or risen. The MPAC system isn't perfect, but it's been improving since its establishment in 1998. Before that time each region had its own assessment date and system so at least we have a standardized system of assessment now. There's always the option to place a Request for Reassessment if you disagree with MPAC's assessment.

Property Tax Terms and Definitions

Current Value The price a property might reasonably be

expected to sell for if sold by a willing seller to a willing buyer

after appropriate time and exposure on an open market. For property assessment purposes, current value and assessed

value are the same thing.

Cost Approach One of the approaches used to value

property. The cost approach is based on the theory that a person would not pay any more to purchase a property than it

would cost to buy the land and replace the existing buildings or improvements.

Sales Comparison Approach One of the approaches used to value property. This approach is based on the theory that the

current value of a property is directly related to the sale prices

of similar properties.

Computer Assisted Mass Appraisal CAMA is a computer

supported statistical analyses used to assist the assessor in estimating value.

Mass Appraisal The process of valuing a group of properties

as of a given date, using common data, mathematical models,

and statistical tests. The use of mass appraisal allows MPAC

to value a large number of properties in a short period of time.

Multiple Regression Analysis MRA is a statistical technique used in CAMA to develop value estimates. MRA is used to

automate the sales comparison approach to value through the development and application of a mass appraisal model.