When dealing with Real Estate Residential the question which frequently comes across is How are Property Taxes are calculated for a home. In this article I will try to address that.
There are two prime factors which are involved in calculation of property tax, before we go into specifics of each one of these:
- Phased-In Current Value Assessment (CVA)
- Total Tax Rate [further broken down into City + Province (Education) + Regional]
Property Tax = Phased-In Value x Total Tax Rate
Municipal Property Assessment Corporation (MPAC) is a not-for-profit organization that was created by Province of Ontario in 1997. This organization’s job is to value and classify properties for municipal tax purposes, this assessment is done every 4 years (last done in 2012). The assessment is then used for four years, for instance the last one is used for 2013, 2014, 2015 and 2016. MPAC may reassess during the 4 year cycle and adjust for any changes you might have done which might affect the value, or assessment for new homes built in the four year cycle.
Let’s understand ‘phased-in’ term used for valuation by MPAC, consider the valuation of a home for the last assessment done on Jan 1 2012, this value will be higher than the assessment value of 2014 and will only equal to the assessment value for determining property taxes in year 2016 which is end of four year term, below example will make it clear.
Property Value Assessed on Jan 1st 2012 – 2,50,000
Assuming the property characteristics remain same, the assessment will increase by 7,500 each year and will be same as last assessed value in year 2016.
For new homes, there is a process of assessing the value after registry date and within six months of occupation, MPAC mails the Property Assessment change notice to the owner. On MPAC’s trigger to the municipality after this assessment they deliver the supplementary tax bill to the owners, this is effective from the occupancy date.
The local municipal tax department advises on the total tax rate which is applied to a property, and also the breakdown to components of City, Region, and Province (Education).
MPAC uses CVA method which essentially gives the valuation by analyzing the comparables in the area and looking at key features in the property. Around 200 attributes are considered per MPAC website but the below key 5 parameters shape the assessment:
Location, lot dimensions, living area, the age of the property and quality of construction are major factors in addition to other factors such as the number of washrooms, the status of basement, heating method, air conditioning, fireplaces traffic patterns, etc.
Hope you find this helpful, feel free to reach out for any clarifications.