What is a Property Tax Assessment?

Property Tax Assessment Definition

A property tax assessment is a method of placing value on real estate for the purpose of taxation.

Governments collect and use tax revenue to pay for the services they provide. Property taxation is a major source of tax revenue for local and provincial governments in Canada.

How Property Tax is Determined

To determine property tax, the local government will establish a budget based on citizens priorities for programs and services. After calculating how much revenue it expects to receive from grants, user fees, permits, fines and investments, the government calculates the remaining revenue requirement which must be realized by property taxes. The local Government must also include the bill from the provincial government for it’s portion of the provincial education property taxes. Once the revenue required to meet the budget has been calculated, the municipal government then determines each property owners fair share of the property tax requirement based on their property’s market value assessment.

The Government places a valuation on every parcel of real estate in the province, according to established guidelines. As with determining a market value for sale, the tax assessor will consider location, type of property, quality of construction, present condition and size.

This valuation is what is referred to as a property tax assessment. Most provinces use the market value approach. It is defined as the price a property might reasonably sell for in an open market when sold by a willing seller to a ready, willing and able buyer.

The property will then be classified by its use, residential, agricultural, conservation or commercial property, etc. The property classification will be taxed at different rates. There are also numerous types of property that are exempt from property taxation by law, such as churches, nursing homes, charitable institutions, fraternal organizations, etc.

Property Tax Assessment as Mortgage Documentation

The annual property tax amount is included in calculating both the Gross Debt Service Ratio GDS and the Total Debt Service Ratio TDS.

When determining mortgage payments as a liability on a mortgage application, lenders consider principal repayment of the loan, interest, property taxes and heat (PITH). If you are purchasing a property or refinancing your mortgage, as part of the mortgage documentation package, you will be required to prove the annual property tax amount assessed on your property.

Tax Rates

The tax rate, multiplied by the assessed valuation of the property, will equal the tax liability of the property owner. (Not including other fees or tax credits).There will actually be two tax rates, one for the municipal or local property taxes and one for provincial property taxes. These will be combined on the tax bill. The tax bill will often show the tax rate as a decimal, for instance, $5.25 per thousand will be listed as .00525.

Example

Mr. McGillicuddy has a piece of residential real property with a property tax assessment of $250,000. If the municipal tax rate is $2.32 per thousand, and the provincial rate is $2.93 the annual property tax will be $1,312.50.

$250,000 X .00232 = 580.00 municipal tax
$250,000 X .00293 = 732.50 provincial tax

Total 1,312.50 total property tax.

Challenging a Property Tax Assessment

If you think you are paying too much in property tax, you can choose fight the local and provincial government over the tax rate, but this would need to be done before the tax rate was set.

On the other hand, you can object to your particular property tax assessment. Local governments will have procedures in place to object to the assessment given, with boards of review appointed by the local government. There will be opportunity for review and appeal on these levels. The basis of your appeal or objection will be that the assessed value is not reflective of market value, for one reason or another.

At First Foundation we encourage you to investigate the different tax rates for the neighbourhoods you are interested in and to review the tax assessments for the homes you are considering. We have found that tax assessments do not always accurately reflect the current market value of a home but we can educate you regarding what role they do play in assessing market value as well as obtaining a mortgage.

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If you are interested in learning more about property tax assessment, please feel free to contact us today!

Last updated Nov 29, 2018