How can we avoid the need for $20B tax refunds?

AACI | Vice President, The Regional Group of Companies Inc.
  • Mar. 7, 2013

john clark$17.44 billion. It’s a big number. Where is it from, you ask?

The source is the 2011 Annual Report from Ontario’s Municipal Property Assessment Corp. (MPAC). The amount is the total dollar value of assessment reductions that were made in 2009, 2010 and 2011.

In other words, thousands of Ontario property owners who didn’t agree with the new assessed values of their properties contained within the province’s 2008 Assessment Update succeeded in getting their assessments reviewed and reduced, for a grand total of $17.44 billion, over the three years that followed (it remains to be seen if 2012’s numbers will round that total up to $20 billion).

In Ontario, MPAC is responsible for preparing property assessments and assisting municipalities with the calculation of property taxes.

Commercial property taxes are based in large part on a given property’s assessed value. If the value of the property has increased by more than the average for that type of property in that area, its taxes will go up.

Revenue is too unpredictable

Ontario updates assessments on a four-year cycle and the process to appeal an assessment can take years. If the appeal is decided in favour of the property owner, the municipality has to cut a cheque – revenue has just walked out the door.

And that’s a problem for municipalities – the uncertainty of revenue that flows from an ad-valorem tax base and the extended period of time during which assessment appeals can take place.

Now granted, successful appeals that result in a reduction represent only a minority of the total. In 2009, 2010 and 2011, a total of 6.33 per cent of all properties in Ontario won assessment reductions. 2012 is not likely to add much to that total, since most reassessments take place in the first year after an Assessment Update.

But six or more percent is not an insignificant number. We’ve all seen how a city council can nag and fret over that last few million dollars in a municipal budget and the public outrage that can ensue when the end result is a tax increase of even a few percentage points. The $17.44 billion represented by that 6+ per cent can have a noticeable impact when spread across the province.

But Ontario’s system is not typical. In B.C., for example, the assessment process is far more streamlined, with most decisions made in a matter of months. New Brunswick is another noteworthy example. I once spoke with an assessor from New Brunswick about how efficient that province’s system is. His answer, “we’re small; we can’t afford not to be efficient.”

As cumbersome as it gets

But Ontario has the dubious honour of having one of the most cumbersome property assessment and appeals systems in the country and a dogged resistance to adopting best practices from elsewhere.

For example, the end of March is the deadline in Ontario for appealing the 2012 Assessment Update for the 2013-2106 cycle. Appeals must be filed by the end of March, but these will not be addressed for some months, or, in some cases, years.

Municipalities have set their budgets for the year, and will shortly be setting the final tax rates that will be included in the final tax bills that go out in the second quarter.

They will need to budget for the outcome of appeals, which is a best guess as to how many appeals will be filed and what the outcome of these will be. In the first year of a new assessment cycle the number of appeals is higher than in subsequent years so the financial impact this year will be at its greatest.

Property owners need to be protected from excessive assessments. Paying more than your fair share is wrong, and in reality if you’re paying too much you’re actually subsidizing your neighbours, who get off by paying less than they should.

For businesses this can hurt the bottom line, and make them less competitive, particularly in relation to competitors in other countries.

The problem with Ontario’s current system is that it’s like a shotgun wedding. No one has time to review the facts and attempt to resolve problems before the tax bills go out and have to be paid.

Property owners may like the feeling of receiving a refund cheque from the city, but they are much better off, both in the short and long term, if they had only paid their fair share at the get-go.

Give a year to sort things out

One easy way of alleviating this is to have a one year lag between the issuance of an assessment and the tax year it governs. For example, if in the summer/early fall of 2012 assessment notices were issued to property owners, with municipalities given the same information, they would know the assessments, have access to how these were generated and be able to compare assessments with those of comparable properties.

Rules could easily be put in place that would have the new values not apply until the 2014 tax year. Taxes for 2014 would be based on new values, but taxes for 2013 would be based on values from the prior assessment cycle. This lag would allow for many assessment problems to be resolved over 2013 before the new values are applied.

Next is to tighten up time lines to ensure any appeals and reassessments are in fact resolved by the end of that year. As I said, the end of March is the deadline for filing an appeal in Ontario, which can be up to six months after the notice was received.

Appeals could be done by November

By tightening time lines both for property owners and the assessment corporation, filing appeals could be completed by the end of November in the same year in which the new assessments are generated. This would allow a full year to work out problems before the municipalities have to rely on the assessment roll for the next year’s tax revenue.

More use of alternative dispute resolution also should be made so property owners, municipalities and the assessment corporation can have meaningful discussions that in many cases will lead to resolution of assessment disagreements.

This would not resolve all appeals prior to the year taxes rely on new assessments, but it would be a step toward more stable and predictable municipal revenue, and fairer taxation for all property owners.

To discuss this or any other valuation topic in the context of your property, please contact me at [email protected]. I am also interested in your feedback and suggestions for future articles.

About John Clark: With over 30 years of experience in the national real estate appraisal and valuation industry, John Clark (BA, AACI, P.App., FRICS, Chartered Valuation Surveyor) is a leading expert on real estate matters that impact the value of commercial, institutional, residential and other special use properties. He joined The Regional Group of Companies Inc. in 1988 and has served as Vice-President of Valuation and Consulting since 1990. He is a Fellow of the Appraisal Institute of Canada and served as its National President, 2001-2002.

John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

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John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

Read more

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