Monday, November 12, 2012

Your Property Taxes May Not be Going Up as Much as You Think

A wave of new property tax assessments has hit Ontario homeowners. The form we receive is a blur of numbers, and it’s not easy to figure out what will happen to your property taxes. In fact, we’re still missing one key piece of information to work out our 2013 property taxes.

My home’s assessment went up 23% from 2008 to 2012. Does this mean my taxes will go up 23%? Nope. Assessments get phased in over 4 years.

My phased in assessment increase for 2013 is 5.7%. Does this mean my taxes will go up 5.7%? Nope. There’s more to it than that.

My form tells me that the average phased-in assessment went up 6.4% in my area. So, my assessment actually went up 0.7% less than the average. Does this mean my property taxes will go down 0.7%? Hahahaha! Property taxes don’t go down.

The average property tax increase has nothing to do with assessments. Each municipality goes through a drawn out political process to decide on a tax increase. It begins with strong talk of a 0% increase. Then the municipality says that to get a 0% increase, they have to cut food programs for starving children, close libraries, and eliminate all arts funding. After the ensuing public outcry, the municipality announces a slightly more than inflation property tax increase.

Suppose that the municipality decides on a 3% tax increase. Then I can expect an increase of about 0.7% less than this, or about 2.3% for 2013. You can use the information on your assessment form to get an idea of what your property tax increase is likely to be. This process has given me reasonably good predictions in the past. Your mileage may vary.


  1. Here is a comments from Money Smarts Blog:

    Hi Michael - here is a comment for today's post. I tried several times, but I just couldn't get by the image verification test. :)

    You stole my article idea! :)

    Funny line about library closures - that get played in my area a lot.

    I don't think your increase estimate is accurate. If your property went up 89% of the average, I would think you'd get that amount of the increase, which is 2.67%

  2. @Mike at Money Smarts:

    I guess Google is trying hard to clamp down on spam. Maybe a little too hard.

    My tax bills have always indicated fixed mill rates across my municipality. This means that everyone pays a fixed percentage of their home's assessed value in property taxes. This approach makes the math work out the way I described. For it to work the way you describe, the mill rates would be different for each homeowner. I suppose it's possible that different municipalities handle things differently, particularly for homeowners whose assessments change by amounts very different from the average, but the calculation I described has worked well for me in the past.

  3. Intuitively, I thought the increase would be larger for Michael (closer to the average), but working it out I get the same:

    So the municipality takes X in taxes off an average house value of 100 in the previous year.

    Then the reassessment and tax increase comes in, putting the tax to 1.03*X off a house value of 106.4 (a 3% increase in the take). The new mill rate is then 1.03X/106.4 = X/103.3. If your house is reassessed at 105.7, then your new property tax is 1.023X, or an increase of 2.3% over the previous year.

  4. Property taxes never go down, well, at least I haven't seen it and never expect it.

    I recall ours will be phased in @ 5%.

  5. @Potato: I never know how much math to include in my posts, but your example matches my thinking about mil rates.

    @Mark: I assume that this 5% is the increase in your assessment each year for 5 years. However, this doesn't mean that your property taxes will go up by 5% each year as I explained in my post.

  6. Yes property taxes do go down (back when Mike H. was running Ont.)but really that is never going to happen again. On my street their are 30 homes exactly the same (welcome to Ajax)none of us have the same taxes...Toronto has the lowest Property taxes based on value .

  7. My 2012 tax assessment did go up and with that new value , the city quickly applied this to their mill rate for this new property value and my taxes did go up rather dramatically. The city simply applies their municipal mill rate to the newly assessed property value and boom your tax bill just went up. MPAC truthfully does not increase your property tax. It increases property value and the municipality then uses the new value and applies their mill rate which of course raises your tax bill with the city. Make no mistake with MPAC, when a new property value is established your tax bill will go up unless the municipality lowers their mill rate which is highly unlikely.

  8. @Anonymous: My mill rate dropped from 2010 to 2011. Things really do work the way I described. If the city chooses to increase taxes by less than the average property assessment increase for the year, then mill rates will go down.