I’m not referring to income taxes, but property taxes. Or, to be more precise, the assessment of your property’s value by the province — a key determinant of the property taxes you are charged by your municipality.
March 31 is the deadline in Ontario to file an appeal, or a request for consideration, that would apply to the current tax year, if you have grounds to believe provincial assessors have overvalued your property.
I’ve written before about the importance of ensuring your property has been fairly assessed. Higher assessed values typically lead to higher property taxes – an operating cost that must be reflected in the rental rates for a commercial property to ensure a healthy profit margin. Doing whatever you can to manage costs, and passing those savings on to tenants, is a competitive advantage.
Of course, if you are an owner-occupier, addressing an over-assessment, and realizing a subsequent reduction in property taxes, yields an immediate and wholesale boost to your bottom line.
The larger the property in question, the more dramatic the savings can be. I’ve seen examples in my work where just one mistake was costing the property owner $100,000, $250,000 and even $600,000 a year.
To determine your property’s fair market value, you must dig deep into the records of the tax assessment authority. These are generally easy to access, but are not provided automatically with your notice of assessment.
Then, you must compare the assessor’s information with your property records, to make sure the value and tax assessment are correct. In the vast majority of cases, a company that manages its own property won’t have the staff or resources to do this correctly.
For example: a clerk in the accounting department gets a tax bill, and, without knowing what they’re looking at, simply pays it.
Overpayment on taxes can occur because the information on the tax bill does not provide sufficient detail to understand how or why it was assessed.
With this in mind, here are three common mistakes that could be inflating your operating costs, which only serves to give your competitors a leg up.
Mistake # 1 — Failing to keep the tax assessor advised with correct information about your property.
Problems arise if the assessor’s office has outdated or incorrect information on the size, use or conditions of your building(s). If this happens, the assessor will arrive at the wrong valuation for your property – and you may overpay your taxes by a large amount.
For example, I worked with a communications company that was erroneously assessed for 220 acres of land that belonged to someone else. Despite being highly competent in every other area of their business, they had unknowingly been paying somebody else’s property taxes.
After multiple appeals with the assessor’s office, we resolved the issue in our client’s favour, and they received a refund cheque for $635,000.
Mistake # 2 — Failing to develop a working relationship with the tax assessor.
If Mistake #1 involves what you say to the tax assessor, Mistake #2 is about how you say it.
At the end of the day, it’s a person who determines the taxable value of your property. Valuing a property is not completely scientific – it’s equal parts fact and opinion. Because people are involved, opinions – like tax bills – can vary widely.
This means you must work effectively with the tax assessor to make sure the value they come up with for your property is reasonable. If you don’t work well with the assessor, you will pay too much. It’s that simple.
Another client had beaten their head against the boardroom table for five years because of a soured relationship with their local assessor. In a four-hour session, I came to an agreement with the assessor that ultimately resulted in annual tax savings for the client of $150,000.
An atmosphere of courtesy, respect, and empathy for the other party’s position goes a long way.
Mistake #3 — Failing to prepare for battle. . . because your property tax questions may come down to a fight …
If you treat a tax assessor with respect and help them to do their job, you can, almost every time, reach an equitable settlement.
But not always. In some cases, you must agree to disagree. If that happens, and you decide to appeal a property’s valuation, it’s essential that whoever represents you before the tribunal has extensive experience in both litigation and property valuation.
Failure to prepare an appeal based on solid valuation theory and local property laws can lead to frustration during the hearing – even emotional outbursts. Not surprisingly, this only makes things worse.
As one tax assessor friend of mine put it, “You have to understand that fighting with an assessor is like mud wrestling with a pig. After about 15 minutes, you realize that the pig is having fun.”
In the final analysis …
The vast majority of problems with property taxes are actually problems with people. You can avoid the most common and costly mistakes if you:
- Ensure tax assessors have accurate information about your property;
- Communicate professionally with tax assessors and;
- Expect the best, but prepare for the worst – appeal your tax assessment, if it comes to that.
If it has come to that, your appeals deadline for tax year 2014 is March 31.
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.