How Property Tax Reassessments Work in Ontario
Property taxes get really confusing. We walk you through how the MPAC reassessment works.
If you own residential property in Ontario, then you should have received a letter last month from the Municipal Property Assessment Corporation (MPAC).
If you read the brief explainer on the back, then you’ll discover that the numbers on the front represent the updated assessment value of your property, and they’re a bit confusing.
You now have two remaining options. You can a) take this information at face value because thinking about how property taxes work is time that you could spend on anything else, or b) you can belly-flop into the wonderful world of current value assessment and learn how your municipal government interprets these numbers in order to fund city services.
If for some reason you chose the latter option, read on.
What does MPAC do?
Similar to Metrolinx, the LCBO, or the Science Centre, MPAC is a corporation operated by the Government of Ontario and administered as a public service to anyone living in the province.
Every four years, MPAC’s board of directors–appointed by the Minister of Finance–determine an assessed value for all provincial properties, which are subsequently delivered to their respective municipalities with a listing.
The assessed value is also known as current value–the current worth of a future sum of money–and does not represent the market value, which is simply the amount that the property is sold for at any given moment.
According to its website, MPAC considers five factors when determining a property’s value:
- Age of property
- Quality of construction
- Living area
- Lot dimensions
The method involved in assigning values to each factor and then determining an overall value is complex and controversial, but we’ll dive into more of that later. For now, all you need to know is that a number is derived, a value is assigned, and the value is intended to be consistent relative to other property values across the province.
How MPAC factors in to your property taxes
After MPAC has assessed all the properties, it sends the assessed values to municipalities to be used to determine property taxes.
This process doesn’t change the total tax revenue collected by any municipality. Property tax reassessments are revenue neutral. If one house is paying more in property taxes, it’s because another house is paying less. The reassessment process does not represent a windfall for the City–it re-balances who pays what to ensure there’s fairness across the city. Since they were last assessed four years ago, some neighbourhoods will grow in value much more than others, so it’s only reasonable to balance that out.
This also means that your assessment value could increase while your property taxes decrease. For example, if your assessment value increases by 15 per cent over four years, but the average assessment value increases by 30 per cent over the same timeframe (it’s been a hot market), then your property taxes will decrease because your assessment went up by less than the average. If your assessment value increased by more than the average, then your property taxes would increase.
Notably, MPAC does not set total property tax revenue or the tax rate for municipalities. Instead, municipalities decide how much tax revenue they need to collect to fund their services, and from there determine what each property needs to pay in order to reach that total. Unlike income or sales taxes, property taxes are not determined by setting the rate, but by setting the total the City needs–a rate is determined retroactively based on this total. From there, individual properties pay amounts relative to the average to make up the total.
That’s confusing, but the main point is that MPAC re-assessments don’t change the property tax revenue the city collects, but re-balances individual property tax totals, which change based on how much they have increased or decreased relative to the average.
By this point of the article, you know more about property taxes than one third of city council. Congratulations!
How MPAC valuates your residential property
This is where things get really hairy. The valuation process of properties is a dark and scary place, so if you don’t turn back now, don’t say we didn’t warn you.
Nonetheless, here’s an oversimplification:
The first step MPAC takes when valuing properties is to come up with something called a mass appraisal model. This model is simply an equation that takes information from real estate sales and applies it to the five major factors of any given residential property (see factors listed above).
However, different market areas have different market values, so a bunch of different models are created for different market areas in the province (a market area being the geographic area where properties tend to move up or down collectively).
But how is this model created?
To begin with, MPAC conducts a series of “sales investigations” to determine “valid” and “invalid” residential sales within a market area. In other words, MPAC looks for sales that appear to be ‘typical’ of market demand, and uses these sales to determine an average selling rate in the area.
“Psst, Jacob,” you whisper. “What qualifies as a ‘valid’ or ‘invalid’ residential sale?”
I’m glad you asked.
If, for example, you sold your house in the Annex to a young married couple because you’re moving to Buffalo to pursue a new career (possibly a poor life choice, I might add) this would likely be a typical sale and thus a valid residential sale that MPAC will account for in their investigation. If, however, you sold your house in the Annex to your grandmother because you’ve recently gone broke and need to make a quick buck, this would be a less-typical sale and thus invalid. The latter example is somewhat of an exaggerated hypothetical, but any scenario that suggests that your property was sold at an uncharacteristic price–for reasons that may explain said uncharacteristic price–will be carefully avoided by MPAC.
When MPAC has determined an average selling rate within a market area, they will then measure the sale prices to the properties’ characteristics. In the example below, the floor space of homes within a market area are compared to the price they were sold for.
In various graphs representing various property characteristics (age, construction, etc.), averages are deduced, and thanks to complicated math, a standard average is determined across multiple property characteristics.
After establishing an average selling rate and after determining standard property characteristics within an area, a mass appraisal model is developed showing estimated sales price and the assessed value of your property.
Ultimately, the process becomes increasingly complicated as more and more factors are used to assign value to a property. While MPAC lists five major factors that contribute to a residency’s assigned value, these five factors only account for 85 per cent of the total value, not to mention all the sub-factors that lie within a single factor. When factoring in location, for example, assessors will have to factor in traffic levels, access to a city, proximity to parks and infrastructure, and so on and so forth.
I’ve done all the math, and I don’t think my assessment is fair. Can I appeal it?
If you feel as though your property assessment is invalid, you always have the option to appeal it. To do so, you’ll have to file a Request for Reconsideration (RfR).
You can send this request either online or through the mail, and within approximately 180 days, MPAC should reply with a reassessment of your property.
If you feel the reassessment isn’t accurate, you then have the option to file an appeal with the Ontario Ministry’s Assessment Review Board (ARB). This can be done through the Ministry’s website, and, once acknowledged by the ARB, you will be granted a hearing.
So congratulations. You’ve made it. The next time you look at your Property Assessment Letter, you should have a general sense of how your property’s value was assessed, and how that value will be used to determine your property taxes.
If, however, your thirst for knowledge has not been sufficiently quenched, you can find an in-depth look at property assessment methodology here [PDF].
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