Paying property taxes may not be the most pleasant experience, but it’s a necessity for homeowners. You may have noticed that your property taxes tend to change every year, which is often because of the regular property tax assessment that your local government conducts.
Let’s go into more detail about property tax assessments. how they’re determined, and how they affect your property tax bills.
What Is A Property Tax Assessment?
The property taxes you pay are based largely on the value of your home. Local governments use the revenue generated from property taxes to cover the cost of various public services they provide. Such as policing, road maintenance, street lighting, public schools, and so forth.
A property tax assessment is a way for governments to place value on real estate to charge property owners the appropriate amount of taxes. Any changes made to a property during a tax year. Such as major renovations or a change in ownership. Are factored into property tax calculations.
How Are Property Taxes Calculated?
As mentioned, the property taxes you’re charged are based on your home’s current market value. Generally speaking, property taxes are calculated by multiplying the tax base by the tax rate.
Tax Base
The tax base is the total dollar value of your home to which the property tax rate is applied. Whenever a new property assessment roll takes place, this often results in an increase in property values, though not always.
Tax Rate
Tax rates are based on property values and the city’s anticipated revenues generated by things like permits, fines, grants, and investments. The local municipality will create a budget based on public service needs.
Property tax rates are calculated every year. Once the revenue needed to meet the city’s budget is determined. The city will calculate every property owner’s share of the tax requirement based on the current property value assessment.
What If You Can’t Afford Your Property Taxes?
Depending on where you live and the value of your home. You may find yourself paying sky-high property taxes. And this tax bill typically increases every year. So, what happens if you can’t afford to cover your property tax bill?
Seek Government Assistance
If you don’t think you can pay your property tax bill and you’re a senior citizen, look into property tax deferrals. Some provinces offer programs to help seniors pay their property taxes. For example, British Columbia, Ontario, Manitoba, and New Brunswick all have programs to help seniors defer their property taxes.
Apply For A Personal Loan
If you can’t come up with the full property tax amount by the due date, consider taking out a personal loan. You can then use the funds from the loan to pay your property tax bill on time to avoid becoming delinquent. Then, you’ll be left with much smaller payments that you can spread out over time to repay your personal loan.
For example, if your total property tax bill for the year is $4,000, you can borrow that money via a personal loan and use the funds to pay your property taxes. Assuming an interest rate of 7% and a 5-year term, you’d be making monthly payments of just $79.20 toward repaying the loan.
Taking out a personal loan is a reasonable option if you have good credit and can therefore qualify for a low-interest rate. The lower the rate, the less you’ll pay toward interest, making your loan more affordable. Check your credit score before applying for a personal loan, which you can do for free using Loans Canada’s CompareHub.
What Is A Property Assessment Roll?
A property assessment roll is a list of assessed values of all properties within a municipality. It contains specific information describing each building, its use, value, and owner. How often assessment rolls are tabled depends on the municipality. For instance, assessment rolls occur every three years in Montreal, versus every year in Toronto.
How Is A Property Assessed?
As mentioned, the value of property directly influences how much a property owner will pay in property taxes. There are 3 main methods used by appraisers to determine the value of a property:
Cost Method
The cost method is based on the substitution principle. This estimates the value of a home based on how much it would cost to construct an exact replica of the subject property. With this method of appraisal, the property’s value is equal to the total cost to build the property plus the cost of the land, minus depreciation. According to this property assessment method, no buyer would pay more for a home than the cost to build the exact same property.
Comparison Method
This method of appraisal involves comparing a subject property to other similar properties sold over the recent past and located in the same neighbourhood. The more recent the sale and the closer to the subject property, the more accurate the assessment.
Real estate agents tend to use the comparison method when determining how much a property could sell for. Listing agents will use this approach to establish an appropriate listing price. While buyer agents use this method to come up with a fair offer price.
Income Method
Investors tend to use the income method to determine the value of an income-generating property. This approach involves estimating the value of a property based on the current net income it generates based on similar property types that have recently sold. In other words, it gives investors an accurate idea of how much a property is worth based on how much income they can earn from it.
More specifically, the income method of appraisal divides the net operating income (NOI) of the rent collected by the capitalization rate, or ‘cap rate’. This rate estimates the potential return on a real estate investment.
Factors That Can Affect The Property Tax Assessment
The main factors used to determine a property’s value include the following:
- Location
- Size of the home
- Property age
- Property condition
- Quality of construction
- Renovations, additions, and upgrades
- Lot size
- Income generated (for rental properties)
Who Assesses The Property Value?
Every city across Canada has its own independent assessment office that determines how much a home is currently worth. This value is then used to determine how much homeowners must pay in property taxes based on the current tax rate. So, who assesses the property value where you live?
British Columbia
BC Assessment provides independent value assessments on properties within jurisdictions across the province for purposes of taxation. Property assessment information is released once a year, with the latest announcement made on January 3, 2023, based on market values as of July 1, 2022.
Alberta
Each municipality in Alberta has its own assessment office that determines the value of properties within their respective jurisdictions. The Assessment and Property Tax Policy Unit oversees the property assessment and tax policy system in the province.
Saskatchewan
Saskatchewan Assessment Management Agency is in charge of providing the province’s property assessment tool. SAMA works independently from the Saskatchewan government.
Manitoba
In Manitoba, Assessment Services is in charge of the assessment of property in the province. Except for the City of Winnipeg. Winnipeg is responsible for its own property assessment services.
Ontario
In Ontario, properties are assessed by the Municipal Property Assessment Corporation (MPAC). Assessments are currently determined by the value of properties as of January 1, 2016, which is the latest legislated valuation date. If certain changes occur on a property during a tax year, MPAC will send out an updated assessment notice.
Quebec
In the province of Quebec, properties are assessed every three years by the Municipalité Régionale de Comté (MRC). Each MRC assesses properties within its jurisdiction and sends out assessment rolls independently.
New Brunswick
In New Brunswick, the Property Assessment Service evaluates and assesses all properties each year. They evaluate all the ~455,000 properties across the province. If you’d like to know your property assessment value, you can check using an online tool called Property Assessment Online (PAOL).
Nova Scotia
The Property Valuation Services Corporation (PVSC) is responsible for all property assessments in Nova Scotia. They are an independent non-profit organization that delivers property assessment notices to homeowners every January.
Every December, they provide an assessment roll to all municipalities in Nova Scotia, which is used by the government to set property tax rates.
Prince Edward Island
In PEI, the Taxation and Property Records Division of the Department of Finance, Energy and Municipal Affairs is responsible for assessing the value of properties. Value is assessed based on the Real Property Assessment Act.
Newfoundland and Labrador
Every year, the Municipal Assessment Agency assesses more than 210,000 properties in Newfoundland and Labrador. The assessments are performed in accordance with the Assessment Act, 2006. The City of St. John’s is in charge of its own assessment service.
Will Your Property Taxes Go Up If Your Property Tax Assessment Increases?
While the value of your property has a direct effect on the property taxes you pay. An increase in your home’s market value may not always mean a rise in your tax bill. The most important factor in an assessment update is not just how your property value changed. But, how it relates to the average change for your property class in your location.
For example, if the assessed value percentage increase of your home is lower than the average change for your property type where you live, your property taxes will probably go down. Let’s say your property assessment increased by 4% since the previous assessment, but the average increase in your property class is 5.5%. That means your property taxes will probably decrease.
On the other hand, if the assessed value percentage increase of your home is higher than the average change for your property type where you live, your property taxes will probably go up. For instance, if your property assessment increases by 8% versus a 5% increase in the average increase in your property class, your property taxes likely increase.
What If I Don’t Agree With The Property Tax Assessment?
If you believe that you’re being charged higher property taxes unfairly, you have the right to challenge the tax rate with your municipal and provincial governments. However, you would have to file your complaint before the tax rate is established.
You can also fight your property tax charges to your local government regarding your individual property tax assessment. Each municipality has designated review boards that can hear reviews and appeals. You may consider this approach if you feel that your property’s assessed value does not accurately reflect the current market value.
Property Tax Assessment vs. Appraisal
Are property tax assessments and appraisals the same? After all, they both involve determining the value of a home. So, what’s different about them?
both terms have similarities, but they should not be used interchangeably. As there are distinctions between them. An appraisal is used to determine the actual value of a home in light of a purchase or sale transaction, or for financing associated with the property. On the other hand, an assessment measures property value to determine how the property is taxed by the government.
Essentially, appraisals and property tax assessments are used to determine property value, but for two very different purposes.
Property Tax Assessment vs. Market Value
The assessed value and market value of a home differs in a few ways.
For starters, the assessed value of a property is determined by the local tax assessment office in a jurisdiction. It is used by governments to calculate property taxes. Conversely, the market value of a home is determined by buyers and sellers in a real estate transaction.
Further, a property’s assessed value directly affects the property taxes the homeowner must pay. While the market value only affects the price that a home sells for under current market conditions.
Additional Reading
Final Thoughts On Property Tax Assessment
Property tax is an important cost associated with homeownership. Municipalities across Canada charge homeowners property taxes based on property tax assessments. It’s important to make sure you pay these bills on time when they’re due. If you need extra time to come up with money to pay your property tax bill, you can try using a personal loan.
