How Does Property Assessment Work in Ontario?
In the next while, all property owners in Ontario will have received their 2016 base year tax assessments.
But many of us do not have a good handle on how the Ontario assessment system works. This is a quick and dirty primer that aims to help you decide if you should consider challenging the value MPAC has bestowed upon your property.
WHAT IS PROPERTY ASSESSMENT?
Municipal governments collect a large amount revenue through property tax. They set tax rates for residential, commercial and industrial properties according to their budgetary needs. The tax burden is meant to be distributed evenly amongst all property owners in the municipality. To achieve this distribution, the tax rate is applied to the property’s value, or in other words, its assessment.
Assessment value is defined as the current value as of the first day of the base year. This means what the property would sell for in an arms-length, open market transaction between a willing buyer and willing seller on January 1, 2016.
HOW ARE PROPERTY ASSESSMENTS DETERMINED?
The Municipal Property Tax Assessment Corporation (“MPAC”) is charged with valuing every property in Ontario. They do this by inspecting properties and analyzing sales data.
Properties are generally valued using one of three methods: The Direct Comparison Approach, The Income Approach, or The Cost Approach.
The Direct Comparison Approach looks at what other properties similar to the subject have recently sold for. Adjustments are made and a value is produced.
The Income Approach is used to value income producing properties such as office buildings, retail plazas and multi-residential apartments. MPAC will assess the market rents the property should fetch and adjustments are made for various expenses. A capitalization rate is then applied to produce a value.
The Cost Approach is generally reserved for special purpose properties that do not usually transact on the market. MPAC will generate an value based on the cost to reconstruct the property. Adjustments are made for various types of depreciation and value is produced.
HOW DO I CHALLENGE MY ASSESSMENT?
Residential property owners must first file a Request for Reconsideration ("RFR") with MPAC. MPAC will then reevaluate the assessment based on the submissions of the property owner. All evidence for the sought value, such as sales data, etc., should be included.
If the owner is not satisfied with the results of the RFR they can file an appeal with the Assessment Review Board. The whole process is outlined on the MPAC website here
Non-residential property owners do not need to file a RFR before appealing to the Board. We recommend that owners of these properties contact a valuation consultant before making an appeal. Owners must always be aware that the Assessment Review Board can order an assessment increase as a result of an appeal.
SHOULD I APPEAL MY ASSESSMENT?
This is a fact specific question. Owners should contact a valuation consultant who can provide an opinion on whether a property is over assessed. They can also provide detailed calculations regarding the tax savings achievable with a lower assessment. The Ontario tax system is complicated and assessment value does not always track cleanly with tax burden.
When deciding to challenge an assessment, property owners should (1) determine if they believe their property is assessed at more than it would sell for on January 1, 2016, and (2) determine the tax impact the additional assessment will cause over the next four years. How much will you save if you are successful? Litigation costs should also be factored into this decision.
If you have questions about your assessment, please contact our offices and we would be happy to discuss them with you.