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Understanding your Municipal Tax Assessment


Blog by Daniel Bennett | January 24th, 2017


Understanding Your Municipal Tax Assessment:
Exposing the Misconceptions of Tax Assessed Value to Empower Home Owners

Property owners will be receiving their new 2017 property tax assessments in the mail over the next few days.  Every January I receive dozens of calls regarding these property tax assessments, as there are two common myths or misconceptions: a) my tax assessed value is market value of my home; b) if my property assessed value increases, so do my taxes.

The Property Tax: How It All Began
 
Property taxes have been around since the Roman Emperor Augustus brought in the first property tax almost 20 centuries ago. Today property tax is the financial backbone of local government all over North America, and is the source of most of the funds that pay for police, fire, local road and sewer, and other municipal services. These services vary from community to community. 
All of us should pay our fair share for these services. The problem arises when the property tax is applied unfairly, causing some people to pay more than they should.

How the Property Tax Works 

The property tax is based on what the government thinks your real property – the buildings and land you own – is worth. The key word here is “thinks.” In principle, it works quite simply: 
• Tax assessors calculate what they think is the fair market value of every property in the municipality. In some municipalities, they do this every year. In others, it can be years between assessments. 

• The municipal government makes up its budget for the year.  It divides that budget into the total assessed value of all the properties in the municipality. The result is what is called the “mill rate.” This mill rate is expressed as so many dollars of taxes per year per $1,000 of assessed property value. 

• You can appeal the assessed value of your property, but not the property tax itself. Once you have accepted the assessor’s opinion of your property’s assessed value, the calculation of the actual property tax is automatic.

 
In other words, you can’t appeal your “taxes”. You can only appeal the government’s assessment of your property’s value. If you think the assessment is too high, you must produce evidence that shows the assessors made a mistake.

Assessments, Mill Rates and Taxes: How They Work 

• Assume your municipality has a budget of $1.5 million this year. 

• Assume the total assessment of all properties in your municipality is $750 million. 

• In this case, the mill rate will be $1.5 million divided by $750 million, or 20 mills. (In other words, $20 of tax per $1,000 of assessment). 

• If your property is assessed at $100,000, then your property tax will be $100,000 times 20 mills per thousand dollars of value, or $2,000 per year. 

How Do They Determine “Assessed Value”?
 
The actual value of buildings and land fluctuates and depends on many factors. To estimate a value for tax purposes, the government employs Tax Assessors. These officials produce an “assessment” of the value of your property based upon the price they think your property would fetch if it were sold in the open market at a fair market price. 

This doesn’t mean that the Assessor comes out each year and checks your house to see what he thinks it’s worth. Instead, to try and stay current, assessors feed market information into a computer that compares similar properties and calculates a blanket appraisal by certain date. These mass appraisals are usually done by comparing information about your property to similar properties recently sold in your neighbourhood or town.

In addition to these “mass appraisals”, assessors get information about your property from other government departments. For example, if you apply for a building permit to build a garage, the local government department forwards the details to the assessment authority, who include the value of your new garage when appraising your property’s value. 

In British Columbia, the provincial assessment authority appraises properties based on the previous year’s sales from July 1st to June 30th, which means that by the time you get your new property tax assessment in early January, it will be at least 6 to 18 months out of date.  Tax assessed values have no relation to current market value.  

If Your Assessment Goes Up, Must Your Taxes Go Up? 

Not necessarily. Let’s say the municipal government kept its spending flat this year. Let’s also assume that everyone in town received a higher property assessment (perhaps a new industry was opening nearby, and land prices went up). In a case like this, no one’s taxes would rise, because the mill rate would drop by the same amount as the increase in the overall assessment. In other words, the higher assessment would be cancelled out by a lower mill rate. 
Unfortunately, in the real world it seldom works this way. Most of the time, governments don’t hold the line on spending, they increase it.  So, both the assessment and the mill rate raise.

Basic Home Owner Grant 
The basic grant can reduce your property tax by as much as $570. The minimum tax payable ($350) ensures that all homeowners (or eligible occupants, which includes an eligible occupant of an eligible apartment, housing unit, land cooperative or multi-dwelling leased parcel) contribute towards the funding of local services such as road maintenance and police protection. 
You may qualify for a reduced grant amount if your property value is more than $1,200,000. The grant amount is reduced by $5 for every $1,000 your property value is over $1,200,000. If your property value is $1,314,000 or more the grant amount will be reduced to $0. 

If your property’s assessed value is over $1,200,000 but has more than one residence on it, you may still qualify for the home owner grant on one residence.

If you are over 65 years of age you will qualify for a higher home owner grant.  Only your primary residence qualifies for a home owner grant.  Your investment or recreational property does not qualify.

If you are considering selling, call a professional Realtor you trust and consult with him/her.  A professional Realtor will be able to prepare a current market evaluation and advise you of your property's current market value.  This is extremely important in a quickly moving and ever changing market.  Don't be taken advantage of by market savvy independent investors who may tempt you with saving a few dollars in real estate fees, but do not have your best interests in mind, are looking to prey on your lack of knowledge to pocket a bargain for themselves and make a fat profit with a quick resale (commonly known as "shadow flipping").  There is nothing illegal about flipping property.  However, a professional Realtor has a fiduciary and legal duty to work in their client's best interest, not their own.  To be unrepresented, is to be unprotected.  Protect yourself by being informed and by consulting with a professional Realtor, you can trust, to protect your savings and investments in real estate.

Article credit:
Ray Wergner  
Royal LePage West Real Estate Services