Property taxes are one of those ongoing costs of owning a home that you don’t really hear too much about when you get your mortgage. They figure into your GDS and TDS ratios at the time of your mortgage approval, but they tend to increase over time while your mortgage, generally speaking, does the opposite. Let’s take a look at these taxes in greater detail – you’re going to pay them, so you may as well know what you’re paying for and how it’s calculated.
Municipal income
In Canada, municipalities are not allowed to run a deficit. That means that by law, they’re not allowed to borrow money in order to fund their daily services and operations. Because of this, they need a stable income stream, and that income comes from the property tax paid by local residents. Unlike provincial and federal income streams, such as sales tax, property tax is a more reliable source of money because it does not fluctuate when the economy falters.
Property taxes are the main revenue stream for municipalities across the country. They fund local services, maintenance, and amenities for residents, including but not limited to garbage collection, parks, water and sewer services, libraries, recreation and community centres, police and fire protection, emergency services, road construction and maintenance, and general administration. On a provincial level, taxes help to pay for healthcare, education, and social services, among other things. Taxes do not vary from resident to resident dependent on how much they utilize these services; everyone within a community contributes to funding them with the idea that everyone benefits when these services are well-run and well-maintained. If you are looking to buy property in an area with a low property tax, you may be rejoicing because thousands of dollars stay in your pocket each year, but it’s probably a good idea to look a little deeper into the community to ascertain whether or not that particular municipality is skimping on services because it’s poorly funded.
Each year, municipalities set budgets and establish the amount of money necessary to pay for local services. Municipalities then set tax rates to make sure they get the funds needed to provide those services, and these tax rates are adjusted every year to meet the new budget. In most cases, tax rates are applied to the assessed value of your land as well as any buildings or structures on the property. Taxes can be applied in various ways, however, and not all taxes are applied to the value of your entire property.
Your property tax is typically calculated by taking the tax rate – otherwise known as the 'mill rate', multiplying it by the assessed value of your property, and then divide it by 1000. You’ll most often see the tax rate expressed as dollars of tax per $1,000 of assessed value of a property. For example, the current residential tax rate in Edmonton is 8.0, and the average home price is $435,366.
Municipalities often set different tax rates for residential properties and businesses or non-residential properties, and residential properties are usually taxed at a lower rate than non-residential properties. Property tax payments are made throughout the year but the frequency depends on the municipality.
Property assessments
Property assessments are important because apart from the tax rate, the assessed value of your property is what determines how much you pay in property tax each year. An assessor bases the value of the property on a variety of factors, including location, type, size, use, and comparable sales in your area. While there are parameters for assessing the value of your home, there isn’t a magic formula where x feature = y dollar amount. Sometimes assessors will come to a property as part of the assessment but in most municipalities, it’s not feasible for assessors to visit each and every home to provide in-person inspections. Instead, they usually rely on files with details about the land and structures on the land, and combine that with real estate and construction data in the surrounding area. Things like building permits for large-scale renovations or any other construction can also trigger an in-person assessment the following year.
Each province has a different body responsible for assessing the value, classification, and exemptions to find the monetary value of your property.
Challenging your property assessment
The frequency of property assessments vary across the country. In Manitoba, for example, assessments are done very two years, while in Ontario, properties are assessed every four years. You can't appeal your property tax amount, but you are able to appeal your property assessment and ask for a re-evaluation if you think that your property has been unfairly or incorrectly assessed. For most assessments, this requires some sort of additional or corrected information on the property, or additional market information on other similar properties in your area. There may or may not be a fee associated with the appeals process.
If you’re hoping to sell your home or access its equity, then you want a high property value, but since your property assessment is directly related to the amount you pay in property taxes, there’s a downside to your property value greatly increasing each time it’s assessed. Then again, if your property’s assessment value increases, it does not necessarily mean that your taxes will increase. Municipalities can also adjust municipal tax rates to address the average impact of reassessment. As well, municipal budgetary decisions may result in changes to municipal tax rates.
Property tax relief programs
There are various tax relief programs available in a number in municipalities designed to help alleviate the property tax burden on those residents with limited income. In Ontario, for example, if you or your spouse is a low-income senior or low-income person with a disability, and you experience a tax increase due to reassessment on your residential property, you may be eligible for a municipal tax relief program.
In British Columbia, a home owner grant is available, which reduces the property taxes that you’re liable for. You may be eligible for the grant if you’re younger than 65, a senior, a veteran, a person with disabilities or living with a spouse or relative with disabilities, or a spouse or relative of a deceased owner.
In Yukon, if the property being taxed is your permanent residence and you lived there for a set period of time, you can apply to the Yukon Government for a Home Owners Grant equal to 50 per cent of your taxes up to a maximum of $450.00 (75 per cent if you are over 65 years of age and up to a maximum of $500.00).
There are also relief programs that operate on more local levels.
Tax deferment programs exist in various locations throughout the country that allow you to put off paying your property taxes for a period of time. Again, there is always interest paid on the amount owing, although the interest rates of tax deferral programs can be lower than the one that’s applied when you simply don’t pay your property tax. It’s also worth noting that in some locations, the rate of appreciation in property value will cover the interest costs of the property tax deferment. But some municipalities require means testing in order to take advantage of these tax deferral programs, and not everyone will qualify.
What happens if I can’t pay my taxes?
If you don’t pay your property tax, then you will incur interest charges until you do pay. After a certain period of time has passed without you paying your property tax, a lien can be placed on your property and it can’t be sold or even refinanced until that lien is removed. If the municipality so chooses, they can also sell that lien to an investor, who then becomes responsible for collecting the debt. Ultimately, your home can be sold to pay the municipality, although it’s a long process that goes through various agencies.
If you think you’ll have difficulty coming up with the money to pay your property tax, it’s in your best interest to investigate what tax deferment programs are available in your area before you get too far in arrears.
Municipal income
In Canada, municipalities are not allowed to run a deficit. That means that by law, they’re not allowed to borrow money in order to fund their daily services and operations. Because of this, they need a stable income stream, and that income comes from the property tax paid by local residents. Unlike provincial and federal income streams, such as sales tax, property tax is a more reliable source of money because it does not fluctuate when the economy falters.
Property taxes are the main revenue stream for municipalities across the country. They fund local services, maintenance, and amenities for residents, including but not limited to garbage collection, parks, water and sewer services, libraries, recreation and community centres, police and fire protection, emergency services, road construction and maintenance, and general administration. On a provincial level, taxes help to pay for healthcare, education, and social services, among other things. Taxes do not vary from resident to resident dependent on how much they utilize these services; everyone within a community contributes to funding them with the idea that everyone benefits when these services are well-run and well-maintained. If you are looking to buy property in an area with a low property tax, you may be rejoicing because thousands of dollars stay in your pocket each year, but it’s probably a good idea to look a little deeper into the community to ascertain whether or not that particular municipality is skimping on services because it’s poorly funded.
Each year, municipalities set budgets and establish the amount of money necessary to pay for local services. Municipalities then set tax rates to make sure they get the funds needed to provide those services, and these tax rates are adjusted every year to meet the new budget. In most cases, tax rates are applied to the assessed value of your land as well as any buildings or structures on the property. Taxes can be applied in various ways, however, and not all taxes are applied to the value of your entire property.
Your property tax is typically calculated by taking the tax rate – otherwise known as the 'mill rate', multiplying it by the assessed value of your property, and then divide it by 1000. You’ll most often see the tax rate expressed as dollars of tax per $1,000 of assessed value of a property. For example, the current residential tax rate in Edmonton is 8.0, and the average home price is $435,366.
| 8.0 | x | 435,366 | = | 3,482,928 | ÷ | 1000 | = | $3,482.93 |
Municipalities often set different tax rates for residential properties and businesses or non-residential properties, and residential properties are usually taxed at a lower rate than non-residential properties. Property tax payments are made throughout the year but the frequency depends on the municipality.
Property assessments
Property assessments are important because apart from the tax rate, the assessed value of your property is what determines how much you pay in property tax each year. An assessor bases the value of the property on a variety of factors, including location, type, size, use, and comparable sales in your area. While there are parameters for assessing the value of your home, there isn’t a magic formula where x feature = y dollar amount. Sometimes assessors will come to a property as part of the assessment but in most municipalities, it’s not feasible for assessors to visit each and every home to provide in-person inspections. Instead, they usually rely on files with details about the land and structures on the land, and combine that with real estate and construction data in the surrounding area. Things like building permits for large-scale renovations or any other construction can also trigger an in-person assessment the following year.
Each province has a different body responsible for assessing the value, classification, and exemptions to find the monetary value of your property.
Challenging your property assessment
The frequency of property assessments vary across the country. In Manitoba, for example, assessments are done very two years, while in Ontario, properties are assessed every four years. You can't appeal your property tax amount, but you are able to appeal your property assessment and ask for a re-evaluation if you think that your property has been unfairly or incorrectly assessed. For most assessments, this requires some sort of additional or corrected information on the property, or additional market information on other similar properties in your area. There may or may not be a fee associated with the appeals process.
If you’re hoping to sell your home or access its equity, then you want a high property value, but since your property assessment is directly related to the amount you pay in property taxes, there’s a downside to your property value greatly increasing each time it’s assessed. Then again, if your property’s assessment value increases, it does not necessarily mean that your taxes will increase. Municipalities can also adjust municipal tax rates to address the average impact of reassessment. As well, municipal budgetary decisions may result in changes to municipal tax rates.
Property tax relief programs
There are various tax relief programs available in a number in municipalities designed to help alleviate the property tax burden on those residents with limited income. In Ontario, for example, if you or your spouse is a low-income senior or low-income person with a disability, and you experience a tax increase due to reassessment on your residential property, you may be eligible for a municipal tax relief program.
In British Columbia, a home owner grant is available, which reduces the property taxes that you’re liable for. You may be eligible for the grant if you’re younger than 65, a senior, a veteran, a person with disabilities or living with a spouse or relative with disabilities, or a spouse or relative of a deceased owner.
In Yukon, if the property being taxed is your permanent residence and you lived there for a set period of time, you can apply to the Yukon Government for a Home Owners Grant equal to 50 per cent of your taxes up to a maximum of $450.00 (75 per cent if you are over 65 years of age and up to a maximum of $500.00).
There are also relief programs that operate on more local levels.
Tax deferment programs exist in various locations throughout the country that allow you to put off paying your property taxes for a period of time. Again, there is always interest paid on the amount owing, although the interest rates of tax deferral programs can be lower than the one that’s applied when you simply don’t pay your property tax. It’s also worth noting that in some locations, the rate of appreciation in property value will cover the interest costs of the property tax deferment. But some municipalities require means testing in order to take advantage of these tax deferral programs, and not everyone will qualify.
What happens if I can’t pay my taxes?
If you don’t pay your property tax, then you will incur interest charges until you do pay. After a certain period of time has passed without you paying your property tax, a lien can be placed on your property and it can’t be sold or even refinanced until that lien is removed. If the municipality so chooses, they can also sell that lien to an investor, who then becomes responsible for collecting the debt. Ultimately, your home can be sold to pay the municipality, although it’s a long process that goes through various agencies.
If you think you’ll have difficulty coming up with the money to pay your property tax, it’s in your best interest to investigate what tax deferment programs are available in your area before you get too far in arrears.
