Property taxation in what is now Canada existed before Confederation. Over time, distinct systems have developed in each province built on a common foundation — property assessment based on market value.

Some form of market value assessment is the gold standard for the distribution of property tax; integral to this is the transparency implicit in assessed values based on current market transactions.

The more assessments reflect current market conditions, the more transparent and fair the distribution of property tax. 

For 2022 and 2023, property taxes in Ontario are based on the Jan. 1, 2016 real estate market.

This disconnect of property assessment values from recent market conditions is adversely impacting property owners in Ontario, particularly those in the commercial real estate industry, and is untenable.  

Property tax assessment systems must be responsive to the needs of those most impacted.

There are two integral components to this: assessments based on current market value and a transparent, smoothly functioning appeal process.

The Government of Ontario has noted, “A well-functioning property tax and assessment system is critical to ensuring that Ontario remains competitive while supporting local services and education.”

Presently, the system in Ontario does not meet the needs of commercial real estate property owners. 

Transitioning Ontario’s property assessment and taxation system to annual reassessment would address shortcomings in this system while restoring transparency and fairness for all stakeholders. 

A tax system compromising economic competitiveness

Investment capital is fluid. Real estate investors seek markets with certainty and transparency.

However, both are being compromised by the property tax assessment system in Ontario.

Due to a cumbersome and outdated system, commercial real estate investors in Ontario lack the desired certainty, transparency and fairness in property taxation.

If not addressed, investors will inevitably seek markets with more favourable conditions. 

The distribution of property tax according to value is critical to Ontario’s Ad Valorem tax system.

The Municipal Property Assessment Corporation (MPAC), a not-for-profit corporation funded by Ontario municipalities, sets property tax assessments for all properties in Ontario.

As the largest assessment jurisdiction in North America, MPAC assesses and classifies more than five million Ontario properties estimated at over $3.4 trillion in value — based on Jan. 1, 2016 market conditions.  

Assessed values from the Jan. 1, 2016 general reassessment were intended to apply to 2017 through 2020 taxation. This period was extended and Ontario now has a seven-year tax assessment cycle, including the 2021, 2022 and 2023 tax years.

This is in place despite annual reassessment having long been accepted as best practice and widely adopted in Canada and the United States. 

Ontario’s four-year assessment cycle was already the longest in Canada. Both B.C. and Alberta have, for many years, conducted annual property tax assessments.

By 2024, Canada’s remaining nine provinces will have conducted — on average — five reassessments since Jan. 1, 2016.

Certain jurisdictions, including New York State, even provide funding to encourage and facilitate more frequent reassessments. Ontario’s property taxation system is not conducive to a competitive business environment.  

Dated assessments create property tax inequities 

Commercial real estate owners accept their obligation to support municipal governments and the education system by paying their fair share of property tax.

This commitment is based in part on the understanding that this tax is fairly and equitably imposed — that it is based on current or, at least, recent market values.  

A properly functioning property tax system requires that relative tax burdens change with property values.

This provides for a fair and equitable distribution of municipal and school funding. It is predicated on frequent reassessments.

The International Association of Assessing Officers has a Standard on Property Tax Policy with a core principle that assessments be “based on Market Value with regular and frequent (preferably annual) updates.”.

Reassessment delays mean inequities in taxation between property classes, within property classes, and geographically.  

The present reassessment delay means a significant and perhaps, even dramatic, property tax shift is pending. This could profoundly impact Ontario property owners.

Responding with tax mitigation measures like capping, clawbacks and phase-in assessments will increase administrative inefficiency and complexity.

When property values are not representative of current market value — and myriad tax mitigation measures are implemented — taxpayers have difficulty understanding how their property taxes are calculated.

Ontario risks perpetuating what is, likely, the most complex property tax assessment system in Canada.

Appeals perform the audit function for property assessment

Canada’s income tax system is based on accurate and honest self-reporting by taxpayers and audits by the Canada Revenue Agency. Conversely, property tax assessments are set by a government agency.

These property tax assessments are subject to audit by individual taxpayers — using personal resources through an appeal process. 

Annual reassessments and appeals would dramatically improve the property tax assessment system in Ontario. Benefits would include simplifying the role and processes of the Ontario Assessment Review Board.

Challenges in the appeals process due to the multi-year cycle include the greatly increased risks from multiple years of tax appeals based on a single date, a lengthy and complex appeal process and cumbersome interlocutory proceedings.

All of the above increase the uncertainty and reduce the transparency of property taxation in Ontario.  

Transitioning to annual reassessments, and a robust annual appeal process, would help ensure Ontario remains competitive while supporting local services and education.

Annual reassessments and appeals are best practices in any property tax assessment system.

In many larger jurisdictions, including New York City, Texas, and Los Angeles County, as well as B.C. and Alberta, they are the norm.

These practices reduce the complexity of appeals, thereby increasing the effectiveness of taxpayer-funded property tax audits; they also improve business competitiveness and limit the need for tax mitigation measures.

By shifting to an annual reassessment cycle in the property assessment and taxation system, Ontario could facilitate stability, accuracy and efficiency of property taxation.

It would enhance fairness for taxpayers and property owners.