Property taxes: Separating fact from fiction

The most common misperception we hear is that if the value of a property increases, the owner’s municipal taxes will increase. Unfortunately, there is no 1:1 relationship. There are a variety of factors at play when municipalities calculate their tax rates and the assessed value of someone’s home or business is only part of that equation.

The following will help property owners better understand the relationship between Municipal Property Assessment Corporation (MPAC) and municipalities, and to help dispel common myths about property assessment and property taxes.

Tax myths and facts

Tax myth 1: If my property assessment goes up 10 per cent, then my property taxes go up 10 per cent.

Fact: There is no 1:1 relationship between property assessments and taxes.

Tax implications for individual property owners vary depending on how their property relates to others around them. When a province-wide assessment takes place and your property assessment increases, it does not automatically equate to an increase in your property taxes.

Tax myth 2: MPAC sets my property taxes.

Fact: Property taxes have two components: municipal taxes set by your local government and education taxes set by the province.

MPAC determines property assessments for all properties in Ontario. Taxes are set by local and provincial governments based on how much it costs to provide important community services like road maintenance and education. Municipalities determine revenue requirements, set municipal tax rates and collect property taxes to pay for municipal services. The Government of Ontario establishes the province’s assessment and taxation laws and determines education tax rates.

Tax myth 3: My property value has doubled. My property taxes will double.

Fact: There is no 1:1 relationship between the change in your assessed value and change in taxation.

Municipalities decide what services they will provide in their communities and calculate how much they will cost each year.  Municipalities collect property taxes to help pay for these services. MPAC’s property assessments help governments calculate each property owner’s share of the overall cost.

Tax myth 4: I pay more taxes than my neighbours because I live in a house that was built this year.

Fact: Even if your home was built this year, MPAC sets the value as if it was sold on January 1, 2016.

MPAC’s property assessments are based on a single valuation date (currently January 1, 2016) for the entire province — where all properties are assigned a value as if they were built and sold on the same date. The date, determined by the province of Ontario, ensures consistency for every community, so all municipalities start at the same point for budget decisions such as property tax rates.

Things every taxpayer should know

Property assessments based on current market values distribute property taxes, they do not determine property taxes. Decisions about how much tax to collect are made by local governments.

Even though the assessed values of homes may increase following an assessment update, the overall taxes collected within a municipality do not change. Municipalities are required by regulation to reset their tax rates to offset the average change in property values as a result of reassessment.

A common misconception is that a significant change in a property’s assessed value will result in a proportionately significant change in the owner’s property taxes. The most important factor is not how much the assessed value has changed, but how much the assessed value has changed relative to the average change for the same property type in the municipality.

Generally, if the property assessment has gone up more than average, the owner’s property tax bill will be proportionately larger. If the property assessment has gone up less than average, the owner’s property tax bill will be proportionately smaller.