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Property taxes made easy

While it may be true that the only certainties in life are death and taxes, when it comes to figuring out how property taxes are calculated, most Canadians experience a great deal of uncertainty.

Property values vary widely across the country. Tax rates are set at the municipal government level, and budgetary requirements are determined by the divergent offerings in each municipality and surrounding area.

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As a result, property taxes are very much subject to where you live. However, their purpose remains the same: they allow governments to deliver programs and services its residents depend on each day, such as fire fighting, garbage collection and snow removal.

Municipalities collect your property tax dollars for themselves, but they also do so on behalf of regional and provincial governments, keeping only a portion of the funds and handing over the rest for services such as policing, road upkeep, education and social assistance programs.

Each tier of government has its own tax rate, sometimes known as a mill rate, and your total property tax bill is comprised of several layers, most often city, regional and education property taxes. The revenue requirements of each levying body are used to determine how many tax dollars need to be collected. The total amount is then divided among property owners with the value of your property determining your share of taxes.

Role of property assessment
The goal of property assessment is to help distribute the tax burden and determine who pays what. In most cases, the higher the value of your property, the greater share you'll pay.

As a result, the first step to allocating property taxes is assigning value to each property. In Ontario, the Municipal Property Assessment Corporation (MPAC) is in charge of establishing the market value of every property in the province. Ontario's Assessment Act requires that a property's value be based on what it would likely have sold for on a specific date. For the 2005 tax year, that date was January 1, 2005.

However, assessment methods differ across the country. For example, Adrienne Batra, provincial director, Manitoba, for the Canadian Taxpayer's Federation, points out that in her province, municipalities are in charge of their own assessments. "It's the most arbitrary and random system," she says. "It's so inconsistent country-wide."

In essence, an assessment is based on sale prices of similar properties in an area; however, other factors such as special features (for example, a ravine) or local amenities also come into play. Property assessments, or current value assessments as they're called in Ontario, are used by municipalities in a formula to determine property taxes for the upcoming year (To learn more about property assessment, check out Bankrate.ca's story The dark side of rising home prices.)

What is a mill or tax rate?
In most cases, that formula involves multiplying the assessed value by the levying body's tax rate. "A tax rate is determined by the budget requirements of a municipality," explains a representative of the tax office in the City of Oshawa, Ont., adding that many municipalities no longer use the traditional term mill rate, referring simply to tax rates instead.

It's the same idea. A mill rate is a tax rate expressed as mills per dollar, a mill being one-tenth of one cent. The rate is determined by taking the entire amount of money the city, region and province needs to collect, through taxes, and dividing it by the total proportioned assessed value of all properties.

For example, if a municipality needs to collect $60 million and the total proportioned assessed value of all properties is $1,985,000,000, it would produce a mill rate of .03022 or 30.22 mills: 60,000,000/1,985,000,000 = 0.03022.

When do proportioning rates apply?
In order to calculate tax rates, some municipalities use proportioned assessment. The portioning rate is the percentage of the assessed value of a property to which taxation is applied.

It's only used in some areas. For example, in Manitoba the portioning rate is 45 per cent for residential properties. Portioning was introduced in 1990 when the province began market-value assessment and discovered that properties had increased in value at various levels over the years.

"Bringing assessments up to current market values all at once would have resulted in very large tax increases for some property owners," says Batra. Instead, changes are phased in through the annual adjustment of portion percentages assigned to nine property tax classes, such as residential, commercial and industrial.

How it all adds up
Property taxes are determined by multiplying the assessed value of a home by the proportioning rate (if applicable) and then by the mill or tax rate.

For example: if your home has an assessed value of $225,000 and your proportioning rate is 0.45, and your mill rate is 0.03022, your total taxes would be $3,059.78 ($225,000 x 0.45 x 0.03022 = $3,059.78).

Most tax bills are divided into several parts, illustrating how the funds are allocated. For example, in the city of Oshawa, for a property assessed at $150,000, the total property taxes would be $2,550, including $1,080 for the region, $915 for the city and $555 for education.

The methods for assessing property value and the number of levying bodies in each municipality differ across the country. In addition, other charges, such as local improvements, municipal drains and business area improvement charges, can be added to a tax bill.

While there is no standard formula, it is possible to figure out your own property taxes if you have the right figures -- namely your official property assessment, proportion rate (if applicable) and municipal tax or mill rate.

Still uncertain? Don't despair. Most municipalities offer online property tax calculators that simply require property owners to enter their property assessment value.

Michelle Warren is a freelance writer in Toronto.

-- Posted: Jan. 4, 2006
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