Updated: Nov 30, 2019
Many homeowners blindly pay their property taxes without giving much thought to where that money goes. After all, it’s not like you have any choice. However, whether you are about to become a new homeowner, or have owned your home for years, it makes good sense to understand how much you can expect to pay for property taxes and just what your taxes are going towards. Here we explore a discussion on property taxes and why they’re often so expensive in Ontario.
PROPERTY TAXES 101
As a property owner in Ontario, your property taxes are paid annually to cover a number of important services, including:
You might be thinking, but I don’t have kids, or I’ve never been to a library in my entire life. However, the taxes are collected to help cover local services that serve the greater good so to speak. Taxes are calculated based on a number of factors that vary depending on where you live. In general, those factors include:
Municipal tax rate: Municipal tax rates vary, based on your property type. Your municipality decides if they’ll need to raise taxes depending on the cost of local services. You can find more information about municipalities here.
Education tax rate: Education taxes fund Ontario schools. They are set by the province and are paid out for the same amount regardless of the type of property you own.
You will receive a standardized tax bill each year with an amount owing based on your municipality budget and the market value of area properties. Many municipalities offer online tools to calculate property taxes. For example, Toronto has a tax lookup website.
Your property value is determined by the Municipal Property Assessment Corporation (MPAC). The value will appear on your annual property tax bill and the value is reassessed every four years by the MPAC.
You can appeal if you disagree with the assessment by submitting a Request for Reconsideration (RfR) to MPAC. There is no fee for the appeal.
IF YOU DON’T LIVE IN A MUNICIPALITY
If your property is not located in a municipality, you pay Provincial Land Tax. In this case, you will probably be sent an interim tax bill and a final bill each year. The interim bill will show 50 percent of the previous year’s amount and will arrive sometime between February and March. The final bill goes out in June. Both bills will have two installment dates.
Charges included in the bill will cover education tax, local roads board tax, and local service board levies.
OPTIONS TO PAY PROPERTY TAXES
Some homeowners worry about the cost of their property taxes. If you feel the amount is more than you can manage, you can avoid paying your property taxes in a lump sum using one of these options:
Add Payments to Your Mortgage: Speak to your lender to find out if they can add property tax payments to your mortgage. This works well as the bank will remit the taxes on your behalf. Because the money is automatically deducted from your bank account, you also don’t have to worry about missing payments or coming up with the money when the taxes are due.
Set Money Aside: Set up a savings account specifically for your property taxes and squirrel away money with each paycheque. Base your contributions on your last property tax bill and to be safe you can add say another 3 percent to the amount to cover any increases.
Pre-Authorized Payments: Your area might also allow for pre-authorized monthly payments. The money is automatically deducted from your account using either debit or credit cards. It’s best to pay debit as then you don’t have to face the balance of your credit card later. You would have to speak to your municipality or town to see if they provide this option.
These tactics help alleviate the burden of paying all of your taxes in one go.
If you are unable to pay your property taxes, the city will eventually charge penalties, interest or fees for overdue amounts. Starting on the first day you default on your payments you will be charged 1.25 percent interest and you will continue to be charged this as long as your balance is unpaid. The longer your balance goes unpaid the more risk you take for penalties and fees. If your account has outstanding taxes or charges, a Revenue Collector will call you to arrange a suitable payment arrangement. If payment is still not made following your Final Notice, your account will be assigned to a bailiff.
This all is a long and drawn-out process, but in a nutshell, if you continue to miss payments and carry a balance for two years, the City commences Municipal Tax Sale Proceedings. If you receive a Tax Arrears Certificate on the title of the property, you have a year to pay before the Treasurer proceeds with a sale of the property through Sale of Land by Public Tender process. So, you really do want to try to keep up with payments.
BEST AND WORST PROPERTY TAXES
According to the Huffington Post Ontario has the worst property taxes. In fact, Toronto and nearby cities have the highest taxes with Hamilton surprisingly topping out at $6,939.59 for an average-priced home. You would think that with high housing prices in Vancouver, they would be right along with Ontario’s high taxes, but they aren’t. They actually come out with the lowest property tax rate among Canadian municipalities. They pay a little over 0.24 percent of their property value, making it the lowest in North America.
To get a better picture, a Vancouverite with a million-dollar property pays property taxes of $2,468 compared to $6,355 in Toronto and a gobsmacking $10,684 in Ottawa. That’s a huge difference.
The only good news is that if prices get too high, it’s common for city councils to reduce the tax rate. This is a tactic used to help lessen the impact on homeowners. We saw Toronto mayor John Tory promise to keep a property tax increase equal with the rate of inflation, but later Toronto city councilors approved a 2.55 percent hike for 2019. This comes in higher than the rate of inflation at 1.9 percent.
You know the old saying, there are two certainties in life: death and taxes. It’s always better to know all the angles of property taxes so you can prepare yourself to make payments in the easiest way for your budget.
If you are looking for your first home, the team at Onlywith.ca has helped thousands of buyers find their first home. Reach out today!