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Ben Sage, Moving Woodstock

Time to unravel the Property Tax mystery. Or try to, anyway….

Posted on November 22, 2012 by Ben Sage in Property Taxes, Property Value Woodstock

If you’re like many Ontarians, in the past month you have received a fresh new notice of assessment from MPAC.  Are you panicking?  Scared that your taxes are going to go up by 18% or worse????

Lets take a closer look.

First, background info:

1. MPAC is Municipal Property Assessment Corporation. They are a not-for-profit corporation established by the Ontario government to assign property assessment values for every property in Ontario. The assessment value of your home is used to calculate your Property Taxes.

2. Property taxes that are payable by property owners are set by their local municipalities.  Here in the city of Woodstock, property taxes are calculated using your current value assessment (MPAC’s value determination) multiplied by the final tax rate for the type of property you have (Residential, Commercial, Industrial etc.).  In Woodstock, the final tax is a rate set based on the needs of the City of Woodstock, The County of Oxford, and the provincial government (Education portion).

3. If your assessed value has increased, IN THEORY, it doesn’t mean your property taxes will go up by the same factor (ie. a 15% increase in value does NOT mean a 15% increase in taxes). Taxes rates are based on the total cost of operations of the city, the county, and the education portion, divided by the sum of the values of all properties in the taxation area.

Simple Scenario

To use a simple scenario, if the total cost of operating the city/county/education was $10,000,000 (ten million dollars) and the total value of all 1000 (one thousand) properties within the taxation area was $100,000,000 (one hundred million dollars), each property would be taxed at 10% or $10,000 per property in this example..  ($100,000 per house times 10% = $10,000 times 1000 houses = $10,000,000).

What I am not going to mention in this EXTREMELY SIMPLIFIED example of property tax rate vs. assessment is the impact that a changing economy has on the overall property tax costs.  All I am going to say is that the commercial/industrial sector is also responsible for footing some of the property taxes to run the municipality. During times of economic difficulty (like say for the past 4 years) commercial/industrial tax contributions suffer (due to vacancy, closing or outsourcing business, decline in production, etc) then the cost to residential homeowners MUST go up to offset the loss from the commercial/industrial sector.

Operating cost = $10,000,000

Total value of all 1000 properties = $100,000,000

Total property tax rate would be 10% or $10,000

15% Higher Assessment, Manageable Increase To Budget

Now suppose in the above simple scenario that the property assessment value increases by 15%, but the cost of maintaining the city infrastructure and services increases only 2.5% (fantasy, right?).  What happens then?

New total operating cost = $10,250,000

New total value of all 1000 properties = $115,000,000.

New total property tax RATE would be 8.9% or  $10,235.

So, despite a property value increase of 15%, the actual amount owing in this scenario has only translated to a $235 annual increase, or 2.35% increase in property taxes.

15% Higher Assessment, High Increase To Budget

Now lets assume that the property assessment value increases by 15%, but due to higher capital expenditures or repairs to infrastructure, the cost of maintaining the city infrastructure and services increases by 7.5% (more like it…).  What happens then?

New total operating cost = $10,750,000

New total value of all 1000 properties = $115,000,000.

New total property tax RATE would be 9.3% or  $10,695

So, with a property value increase of 15%, but a larger increase in the overall tax revenue required, the property taxes payable would jump almost 7%.

So, in controlling your residential property taxes, there are two main factors that homeowners need to be aware of.  The first factor is their assessment value.  The second factor is the fiscal responsibility of their local government.  Changes in the overall cost of improving, maintaining or generally operating the city’s infrastructure and costs to supplying education are far more important to the overall property taxes paid by homeowners than assessment values.

Back to controlling your property taxes, if you think your property assessment is ridiculously high incorrect, I have written another blog post about the appeal process here.



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