TABIA - Toronto Association of Business Improvement Areas

Property Tax Explained
27 October 2004 01:38 PM

The following article has been adapted from a tax seminar prepared initially for the information of TABIA’s Board of Management.

Intro

The average person probably knows as much about rocket science as he does about his property tax bill. When you look at your bill and the explanation of the items on it, you might have concluded that it would be better printed on Kleenex because you're paying through the nose. And you might be excused for concluding that there is one thing missing - a section which would explain the explanations.

Even though you may not know a lot about tax, there are some things you do know. You know that:

a) A political promise today means another tax tomorrow;

b) You really can't beat the game. If you earn anything, it's minus taxes. If you buy anything it's plus taxes.

c) A "slight tax increase" costs you about $300, while a "substantial tax cut" lowers your taxes by about $30;

d) A politician will consider every way of reducing taxes except cutting expenses.

In The Beginning - Before Current Value Assessment

Property was assessed; that is, the municipal government sent out a valuator who examined the property and determined its value. And once a property was assessed, that assessment stood indefinitely. The last assessment before CVA was done in the 1940's. It would probably never change unless you renovated or added to your property. Each year the municipality would figure out how much tax rev. it wanted and then it would set the tax rate - so for example, if the assessor said your property was worth 100,000.00, and the tax rate was set at 1%, you would pay 1% of 100,000.00 i.e. $1,000.00. But when it comes to tax, governments really don't want the taxpayer to understand what is going on, so instead of talking about tax rate, it talks about "mill rate". So, remember, "mill rate" is just another word for tax rate.

This method of property assessment gave stability to the system. If your property was assessed at $100,000.00 in 1956, unless you made changes to it, it would stay at 100,000.00 year after year. You knew that the municipality would change the tax rate from time to time, but you also knew that the rate would rise reasonably slowly, so you always had a good idea of what your taxes would be as years went by. As the City expanded i.e. new homes and buildings were built, they were assessed when built, so the values would be higher than on older properties. So for example a house built at College and Ossington in 1956 might have been assessed at say 30,000, but the identical house built at Finch and Victoria Park in 1966 might be assessed at 40,000. But when you bought that house you knew what the assessment was and you knew with reasonable certainty what your annual tax bill would be. If you thought the taxes were too high or outside your budget, you didn't buy that house, you bought a different house with lower assessment.

This did lead to anomalies. For example, over a long period of time, as market values rose, assessed values stayed the same. So it could well happen that a new, modest-size house at Steeles and Islington might be assessed higher than an large, older home in Rosedale, although the Rosedale home would bring much more money on the market. But the market has a way of straightening out that kind of discrepancy, because the market value of each home reflects in part the annual tax bill. If the taxes on a home are $1,000 a year, a buyer takes that into account when considering what he is prepared to pay for it. If that same home had an annual tax bill of $15,000, he may not be willing to pay nearly so much for that home. So the price of the property reflects in part the level of tax imposed on it.