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Nothing is sure but death and taxes, but it sure isn’t easy to figure out property taxes in Ontario!
People often focus on City Council’s decisions and their effect on property taxes, but Council is just one of the factors that impact property taxes. Changes in the values of property and changes in the Education portion of property taxes also have an impact on the city tax bill. This means that even if the Council brings in a zero tax increase, there will be homeowners who will see their property taxes go up!
But let me start with what it all means to those who rent in London. It is a little easier to explain!
In Ontario, the amount a landlord can increase your rent is regulated in Ontario under Bill 19.
Rent increases are currently capped at 2.5% per year and the actual amount of an increase is based on the Ontario CPI (which right now is less than 2.5%). This means that the city council’s budget debate does not have a substantive impact on changes to the amount of rent that a renter will pay. As well, city policy since 1998 has been to approximately equalize the change in tax levy for both residential and multi-residential properties.
Let’s turn to homeowners. Although their tax bill is more directly affected by what Council does, there are some twists and turns.
The easy bit is calculating what a homeowner will actually pay in taxes in dollars and cents. It is a simple formula:
Taxes = Tax Rate X CVA (Current Market Value Assessment) of the property.
The tough part is what the rate is and the CVA because they come from two different places!
Other than the city budget change, there are two other pieces that affect the tax bill; the Education portion and the value of the property. The value of a property (the CVA) changes each year based on a phase-in of the calculated market value. More on this tricky bit in a moment.
The Education portion is a tax rate the Province assigns. It appears on the City tax bill as a separate rate and it varies with the type of property (although residential and multi-residential education rates are the same). In 2012, the Education tax rate was .221% of the CVA. So if the CVA of a house was $200,000, $442 of what the homeowner paid to the City was remitted to the Province.
Now the tricky bit. Every four years, the provincial Municipal Property Assessment Corporation (MPAC for short), calculates the CVA. The most recent CVA was calculated as of January 1, 2012 for each property in the province, based on real estate sales in the area of each property by type. Assessment notices were issued in November 2012 advising property owners of the reassessed market value of their property.
The effect of the change in property assessment is confusing to many people, including city councilllors. To further confuse everybody, the change in assessment is phased in over a four year period in equal increments. For example, if your property was assessed as going up in value by $10,000 between 2008 and 2012 (let`s say from $200,000 to $210,000), its CVA for calculating your 2013 tax bill would only be $202,500. In this example, for the 2013 property tax year, this homeowner`s phased in assessment increase was 1.25%. So this means their taxes will go up by 1.25%, right? Wrong! First, we have to look at how this compares to the average for other residential properties in the city.
For the 2013 property tax year, the average phased-in assessment of all residential properties increased approximately 2.48% in London. Does that mean the City gets that much more in tax revenue from everybody? Nope. Under law, the change in assessment is revenue neutral for the city. It is required to adjust the tax rates for all properties so that the net revenue before and after is the same (I don’t want to see the size of that spreadsheet!). In 2012, because of this adjustment, the tax rate for residential properties in London was actually lower than it was in 2011.
OK then, back to that 2.48% average increase in the phased-in assessment. So what does it mean to the individual homeowner in 2013? It all depends on the change in the phased-in value of their home compared to the average change in the phased-in value.
For the individual home owner, if their phased-in increase for 2013 also went up by 2.48%, and the tax increase from the city is 0%, their tax bill should stay pretty much the same as last year. For our sample homeowner whose phased-in assessment increased by 1.25%, their taxes would actually go down if the Council voted for a 0% tax increase.
How much each homeowner will pay in dollars and cents, depends, of course, on the value of the house and the final tax rate. In 2012, the city portion of the tax rate was 1.164267%. A house worth $300,000 would pay about $3,500 in city property taxes, and a house worth $200,000 would pay about $2,330.
You can get a more technical explanation from the following report to Council. It is agenda item #2 on the January 22, 2013 meeting of the Corporate Services Committee.