A commonly asked question we often get when working with our clients in Toronto relates to property taxes. They are eager to know what they are, what they are used for, when they are paid and how they impact their property. Although there is a lot to cover about them, we thought we'd make an attempt to address them briefly through this article.
Property taxes are a relevant aspect of any real estate purchase and an added expense for anyone owning a home or investment property. Considering that in 2014 they made up close to 39% of our city’s annual operating budget, their use impacts our every day life in more ways than one.
Property taxes are a levy based on a property’s assessed value and consist of two key components, one pertaining to the municipality and the other one to education. Each municipality will determine its tax portion independently, based on its intended annual budget. While the portion for education, which helps fund Ontario’s elementary and secondary education system, is decided upon by the Ministry of Finance.
The tax rates resulting from combining these two portions, are then multiplied by a real estate property’s Current Value Assessment - determined by the Municipal Property Assessment Corporation (MPAC) - in order to generate its annual propertytax. MPAC uses the information held in its extensive and detailed property database to assess your property. This information is constantly updated using different resources such as the transactions recorded in Ontario’s Land Registry, the interactions withproperty owners or by conducting on-site inspections, among others.
Assessments in property value are also regularly carried out by MPAC in order to reflect market changes. The last one performed took place in 2012 and the difference in value in comparison to the 2008 assessment, will be phased-in through a 4 year span which ends in 2016.
Plainly explained, if the appreciation in a property’s value between 2008 and 2012 was $40,000, the assessed property value for such will increase proportionately each of the 4 following years by $10,000, until the 2012 assessed value is reached in 2016. Assessments in property values are also updated if changes occur on a property, such as new construction or ownership changes.
It is important to point out that although municipalities in Ontario cover part of their operating budget through property taxes, they are prohibited by law from running deficits or generating revenue. This means that even though property values increase, the property tax base doesn’t necessarily end up being higher. If property values increase in accordance with the average growth in value of homes in a given area, property taxes should remain the same. On the other hand, if a particular property experiences an increase in value higher than the average, its property taxes will most likely increase.
These differences in proportional value between properties, along with the increase in the number of properties built in a municipality, will normally redistribute the property tax contributions made by each property, either increasing or alleviating them in a given period.
Once your property tax has been determined, you will be billed the resulting amount in installments. First you will receive an interim property tax billing in January and then a final property tax billing in May. Payments will then need to be completed proportionately on the first business day of the following months of July, August and September of that year.
Although property taxes make up a significant amount for homeowners, new homebuyers and investors to cover, they make an important contribution to running our city.
Jose & Claudia
RE/MAX agents since 2001, avid negotiators and passionate for what we do. Buying, selling or renting your home with us has never been easier!