What are Property Taxes?
As a homeowner, you’re responsible for paying taxes on your property that are used to generate money for public purposes in your area. Property taxes are charged by the municipality in which you live and are used to fund municipally-run services such as garbage, composting and recycling, road maintenance, snow removal, parks and recreational facilities, libraries, transportation and more.
- Property taxes are charged by the municipality in which you live and are used to fund municipally-run services such as garbage, composting and recycling, road maintenance, snow removal, parks and recreational facilities, libraries, transportation and more
- In most cases, you can either pay the taxes yourself or request that your lender collect and pay your property taxes directly to the municipality on your behalf
- If you believe your property was over-assessed, you can file an appeal
Important: Property taxes represent a major source of funding for city governments and are redistributed back into your municipality.
How property tax is calculated
Your property taxes are based on a number of factors including your municipality’s budget, the assessed value of your property and its relative value compared to other properties in your area.
Formal property assessments are conducted in order to establish property values, which the government uses to establish the rate. That rate is then multiplied by your property value to determine the amount of tax you’ll be required to pay. Additional factors such as your property’s size, construction type, age and location can also affect the amount.
Property taxes are generally comprised of two components: 1) Municipal tax; and 2) Educational tax:
Municipal tax rate
This tax represents a main source of revenue for municipalities. Rates are established by your municipality and can vary depending on the type of property you own. Each year, municipalities assess whether tax rates need to increase in order to cover the services they’re used to fund. As the cost of services increase, so too will your taxes. You can learn more about municipal taxes, and use a property tax calculator, on your municipal government’s website.
Education tax rate
Education tax rates are established in essentially the same way as municipal rates but, because public education is overseen by provincial governments, the rates are set by the province. Education taxes are used to help fund elementary and secondary schools. Each year, provinces establish total education funding requirements and properties are taxed accordingly.
Paying property tax
At the start of each year, your municipality will mail you a property tax bill. Property taxes are not insignificant and can represent sizable payments, so it’s best to budget accordingly. Typically, you have the option of paying on a monthly, quarterly, semi-annually or annual basis. Payment frequency may also be determined by the municipality. You can usually pay your taxes online, in person at your financial institution, or via mail, telephone banking or pre-authorized bill payment.
Or, if you prefer, most lenders offer the option of adding your property taxes into your monthly mortgage payment. In this case, they simply take your annual property taxes and divide the total amount by the number of mortgage payments you make each year. This can be a helpful option – particularly for first-time home buyers – since your lender then takes on the responsibility of paying your property taxes to the municipality. This becomes one less ongoing cost you have to worry about paying yourself.
Tip: It’s important to budget for annual property taxes as they can be significant.
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Properties outside of municipalities
If you live outside of a municipality, the responsibility of the local services fall under the purview of the provincial government and you’ll be required to pay what’s known as a provincial land tax. Similar to property taxes within a municipality, provincial land taxes are used to fund community services outside municipal boundaries and are calculated in the same manner as property taxes.
Determining property value
To establish your property’s assessed value, municipal property assessment organizations, such as the Municipal Property Assessment Corporation (MPAC) in Ontario or BC Assessment in British Columbia, analyze key features such as a property’s location, age, quality and size as well as sales of comparable properties in your neighbourhood, to provide a current value assessment.
Tip: Ask about property tax rates when viewing homes you’re thinking of purchasing so you’re not surprised later.
Filing an appeal
If you don’t agree with the amount of your property taxes, you have the right to file an appeal by completing and submitting a request for reconsideration. It’s important not to get hung up on the actual dollar amount you’re being asked to pay but, rather, establish how your property taxes compare relative to others in your neighbourhood.
For instance, you may discover that you’re paying the same amount of taxes as your neighbour whose house is twice the size of yours and, therefore, would likely be assessed at a higher value. You’ll need to demonstrate that your house was over-assessed in comparison to your neighbour’s or to comparable sales in the area. The assessed value is what’s used to calculate how much tax you owe so, if your home is assessed at a higher amount than it’s worth, your taxes should be lower, and you may have a case.
You can obtain a comparative market analysis from a real estate agent who will provide an evaluation of your home, comparable listings in your area and an assessment of the local market. You may also want to hire a professional appraiser to provide you with an accurate evaluation of your home’s worth. Armed with this information, contact your local property assessment office and request a review. If the review is unsuccessful, you can usually appeal the decision, but keep in mind that an appeal could also backfire if a review of your property reveals that you were initially under-assessed. It’s also good practice to ensure that all of the information pertaining to your home as outlined on your annual property assessment is accurate. If there are any discrepancies, contact your municipal office to have them corrected.
COVID-19 property tax update
In many areas of the country, municipalities have offered additional time to pay taxes without penalties or accumulating interest changes in light of financial hardships due to the COVID-19 pandemic. Check with your local municipal office for more information on possible allowances. Keep in mind, however, that payment deferrals do not reduce the amount of your taxes – you’ll still be required to pay them in full.
Other articles in this guide: “Closing Costs: What are They And How Much Will You Pay?”
- What Does a Real Estate Attorney Do?
- What is a Mortgage Interest Adjustment?
- Statement of Adjustments & Trust Ledger Statement
- What is the GST/QST/HST New Housing Rebate?
- Provincial Sales Tax (PST) on Mortgage Default Insurance
- Closing Costs Buyer’s Fees
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