If you’re looking to buy a home, the current real estate environment can be very daunting.Between the pandemic, rising inflation, and the housing crisis, becoming a homeowner seemsmore unattainable than ever. In this article, you will find an overview of…
As a homeowner, you’re responsible for paying taxes on your property to the municipality in which you live. Property taxes are used to generate money for public purposes in your area. Without this major source of funding, the services available where you live would be greatly reduced. Nesto’s property tax calculator will help you estimate the amount of property taxes you’ll have to pay to the municipality so you can add that to your annual homeownership budget.
- Property taxes are the main source of revenue for municipalities and are used to fund services such as garbage, composting and recycling, road maintenance, snow removal, and parks and recreational facilities
- Property taxes are usually determined near the second half of each year. Interim taxes are paid in the first half based on the previous year’s rate
- Cities with high-valued local real estate and larger populations generally have more flexibility to keep tax rates low since the amount collected from individual homeowners is generally higher and there are usually more taxpayers contributing
What is property tax?
Property taxes are levies collected from property owners by the municipality, which are then 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 value assessment
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 including a property’s location, age, quality and size as well as sales of comparable properties in your neighbourhood, to provide a current value assessment.
Important: If you live outside of a municipality, the responsibility of your local services falls under the purview of the provincial government and you’ll be required to pay what’s known as a provincial land tax.
Property tax calculator
The tax due is typically calculated by multiplying the assessed value of the property by the tax rate. This is commonly referred to as ‘mill rate’ and expressed as dollars of tax per $1,000 of assessed value.
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Interim property taxes
Interim property tax bills are issued annually and reflect 50% of the previous year’s annual taxes. The amount paid for interim property taxes in the first half of the year will be put towards the total property tax payment for that year. This enables cities to collect tax revenue while deciding on their budget for the year, which includes their official property tax rate.
If the final property tax rate is higher than the previous year’s tax rate, you’ll have to pay more for the second round of payments in the year to make up the difference. And, on the flip side, if the final property tax rate is lower than the previous year’s tax rate, you’ll pay less for the second round of payments in the year.
Official property tax rates
Property taxes are the main source of revenue for municipalities and they’re usually determined once a year near the second half of the year. Municipality finances are highly regulated by provincial governments and there are strict restrictions on borrowing. As a result, municipalities have to carefully balance their budgets according to the expenses they face each year. One tool that they can use is their property tax rate. By deciding on the property tax rates later in the year, municipalities have more time to figure out how much additional (or less) revenue they require.
Tip: Expect to receive your property tax bill early in the year. You typically have the option of paying on a monthly, quarterly, semi-annually or annual basis. Payment frequency may also be determined by the municipality.
How do property taxes vary by city?
Local real estate values play a key role in property tax assessment rates. Cities with high-valued real estate and larger populations generally have more flexibility to keep tax rates low since the amount collected from individual homeowners is generally higher, because real estate prices are higher, plus there are usually more taxpayers contributing.
Another factor is the city’s commercial-to-residential tax ratio. In most municipalities, businesses pay at least double the amount of tax than homeowners, with the Canadian average around 2.5. Typically, a higher commercial property tax rate results in a lower residential rate, and the opposite is also true. Local council may, however, choose to lower commercial rates if they feel their community needs to offer more competitive advantages to businesses.
If you disagree 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 to other properties within your neighbourhood.
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