Prepared by Matthew White
Council Research Team
Housing Value and Taxation
For Cllr. Ridley
June 26, 2017
Every four years, the Municipal Property Assessment Corporation (MPAC) performs an assessment on every home in Ontario in order to provide a dollar value that will be used by municipalities for taxing purposes.
MPAC’s assessment considers over 200 factors when evaluating your home. 85% of the total assessment is made up from five of those factors. These five factors are: location, lot dimension, age of property, quality of construction, and structure size. Once the assessment of your property is complete, your home is then compared to homes with similar assessments in your area that have recently sold. After collecting the information on the sales price of these comparable properties and making necessary adjustments specific to your home, MPAC arrives at an assessed value of your property. This figure is the price your home could have sold for January 1st on the year of the assessment.
If comparable homes in your area are selling for an average of $220,000, then your home will be assessed at that figure, taking into account any adjustments that MPAC makes regarding specific details of your property. MPAC will only compare your home to the sales price of similar properties in your area based on the 200 factors. Your home assessment will not be affected by the sale value of properties that are dissimilar to your property. MPAC will only compare homes on an “apples to apples” basis.
Currently, home values are set by the January 1st 2016 valuation date. If your home’s value increased in 2016, your new value is being phased in on a 4-year basis (increasing by 25% increments of the total increase each year). For example, if your home was previously valued at $200,000 and then revalued at $220,000 in 2016, the increase will be phased in for property tax purposes over the following four years:
o $205,000 in 2017
o $210,000 in 2018
o $215,000 in 2019
o $220,000 in 2020
When your municipal taxing authority sets property tax rates, your assessed value and classification are used to determine your property taxes. The next assessment valuations will be released January 1st 2020 and will affect the tax years of 2021 to 2024. During this assessment, your home will be compared to the sales value of similar properties in your area that have sold over the span of 2016 to 2019, as close to the date of January 1, 2020 as possible.
You will not be taxed at your new assessed value immediately; rather the city will tax your home on the yearly phase-in value. In the example above, in 2017, you would be taxed on the $205,000 phase-in value not the $220,000 final value which will be taxed in 2020.
An assessment valuation increase does not necessarily mean that your property taxes will increase. Your tax level (the amount of dollars you will be billed) will depend on the various distribution of all the increases and decreases of home values throughout the city.
In the case that certain portions of the city’s home values increased greatly compared to other portions of the city that did not increase, homeowners that received larger increases in their home’s value may see a larger tax increase than those who either decreased in value or remained at value similar to their last assessment.
In the case that all home values increased equally, then everyone’s property taxes would increase at equal levels.
Keep in mind that these home reassessments have no impact on the total property tax amount a municipality raises. Reassessments only affect the way the tax levy is allocated amongst the various properties and property classes.
The City of London may adjust the property tax rate based on the increase or decreases in total home values. The expected annual city budget for that year is divided by the total value of all London properties, at various rates depending on the kind of property, to determine the municipal tax rate. For example: $1.36 Billion (the expected city budget) / $100 Billion (the total value of all London properties) = 1.36% (municipal tax rate).
To determine how much a home owner will pay for property taxes, a homeowner’s assessed home value (i.e. $300,000) is multiplied by this new municipal tax rate (i.e. 1.36%).
In 2017, the total dollar value of residential properties in London increased by 1.31%. This increase was mainly due to MPAC valuations phasing-in the 2017 value of homes. Because the total value of London properties increased, the tax rate needed to meet the needs of the city budget has lowered (2017’s tax rate has dropped slightly from 1.36261% in 2016 to 1.360444%).
It is expected that everyone’s tax level (the actual amount of dollars you will pay) will increase because the city’s budget is planned to grow by 2.6% each year until 2020 when the next budget is determined. The city has decided that residential property tax levels should only increase by 1.1%. The difference is accommodated by taxing other kinds of properties (i.e. commercial, industrial, etc. at different rates). This 2.6% increase in the budget, and 1.1% residential property tax increase, equates to an annual average residential property tax increase of $71 (based on the average home price of $221,000).
To clarify, while the tax rate may be lowered, this new rate of 1.360444% is being applied to a larger total dollar of home values than last year. Due to the combination of a higher city budget and the increased total value of homes in London, Londoners will pay slightly more in property taxes on average. In terms of dollar value, this lower rate translated into a slight increase in the average tax level (dollar value). Londoners on average paid 1.1% more dollars than they did on last year’s taxes because the total value of London homes increased.
Tax rate = the rate at which Londoners are taxed on their property
Tax level = the amount of actual dollars spent by Londoners
So while the rate is going down, the overall dollars paid are going up approximately 1.1%.
Because the average value of London homes is going up, most people will see a slight rise in the dollar amount of their taxes. The tax rate is going down but the amount of dollars taxed is going up. The net effect of the two in combination is that the tax level or the actual amount to be paid on average is going up by 1.1%
Currently the housing market is high, meaning that homes are selling at higher than normal. Cllr Ridley is therefore wondering,
If a resident sells their home, the buyer is faced with increased property tax, based on the home sale price. Every four years MPAC reassess homes to ensure the correct amount of property tax is reflected, for all homes in the City of London.
Due to the increase of home selling prices, does this affect the overall tax amount for the neighboring homes and community?
(Not necessarily – only the values of comparable houses in the area will affect a home owners assessment, MPAC values homes apples to apples; in other words if houses of a similar kind start selling high, all similar houses in the neighbourhood will see an increase, but the other homes will not be affected; those other homes will be affected by the sale prices of homes in that neighbourhood that are similar to their kind)
- Every home receives their own home assessment by MPAC
- MPAC gives home owners one value for 4 years
- If the value of the new assessment is higher than the previous assessment, then the increased value of the home is phased in for 4 years; the City of London will tax the phased-in assessed value over the next 4 years
- If the value is a decrease from the previous assessment, then the decrease in immediate
- The current assessment value is based on the valuation date of Jan 1, 2016 and effect the London tax years of 2017-2020
- The next assessment value will be based on the valuation date of Jan 1, 2020 and effect the London tax years of 2021-2024
- MPAC provides your property’s assessment information to your municipality/local taxing authority. The assessed value of your property is used as the basis for calculating your property taxes. The value on the notice you received in 2016 will be used by your municipality/local taxing authority to calculate your taxes for the 2017-2020 property tax years.
- The City of London may adjust their property tax rate based on the increase or decreases in total home values. The tax rate depends on the City’s revenue needs over the next year. The expected annual city budget for that year is divided by the total value of all London residential properties to determine the municipal tax rate.
- For example: $1.36 Billion (the expected city budget) / $100 Billion (the total value of all London properties) = 1.36% (municipal tax rate)
- To determine how much a home owner will pay for property taxes, a homeowner’s assessed home value (i.e. $300,000) is multiplied by this new municipal tax rate (i.e. 1.36%).
- Assessed Value x Tax Rate (for the residential property class) = Property Tax
- For example $300,000 x 0.0136 = $4,080
- Under the phase-in provision in the Assessment Act, an increase in assessed value is introduced gradually over four years. A decrease in assessed value is introduced immediately.
- For example, if your home was valued $300,000 in 2016 and then $400,000 in 2020, the increase will be phased in for property tax purposes over the following for years
o $325,000 in 2021
o $350,000 in 2022
o $375,000 in 2023
o $400,000 in 2024 (https://www.mpac.ca/PropertyTypes/ResidentialProperties)
- If your home was valued at $300,000 in 2016 and then $280,000 in 2020, the decrease will drop to that figure immediately and will be taxed at $280,000 for the next 4 years.
- When your municipality/local taxing authority sets property tax rates, your assessed value and classification are used to determine your property taxes. An assessment increase does not necessarily mean that your property taxes will increase. For questions about your property taxes, please contact your municipality/local taxing authority. Education tax rates, where applicable, are set by the Government of Ontario and will also be applied to the assessed value.
- Understanding Phase-in: https://www.youtube.com/watch?v=DI57TJpDcz
How MPAC assesses houses
- 85% of the MPAC assessment is based on 5 factors: location, lot dimension, age of property, quality of construction, and structure size
- Total of 200 factors go into the full assessment, but those 5 factors make up the bulk
- Assessed values are released every 4 years (Jan 1. 2020 is the next assessment)
- Once the assessment of your property is complete, your home is then compared to homes with similar assessments in your area that have recently been sold. This comparison between your home and similar home sale prices determines the value of your home.
- Our assessors are trained experts in the field of valuation and apply appraisal industry standards and best practices. We look at sales and compare your property to similar properties that have sold in your area. This approach is called Current Value Assessment.
- “After collecting the sales of the comparable properties and making the necessary adjustments we arrive at an average assessed value of the property. That is what the property could have sold for on the valuation date.”
Correspondence with MPAC
- “So the assessment is done first (the 5 major factors, and the total of 200 factors) to determine what my home is, then it is grouped together similar houses in that area that have sold recently…and the average sale price of those homes at the time will determine my value”
- “The assessed value must reflect what the properties could have sold for on the valuation date”
- “Correct and if there are other factors that impact your property we make the necessary adjustment to the value”
- “so the sales of other homes is not actually part of the initial assessment; the sales of other homes are only taken into consideration after MPAC knows what my home ‘is’, via those 200 factors”
- “So once all of those 200 factors determine what my home ‘is’, MPAC can group me into similar houses in my area and the average sale of those properties, determines the value of my home, + or – the adjustments that need to be made”
- “So if I get grouped into houses in my area that are all selling their homes at $400,000, my next assessment will be $400,000 (+ or – the adjustments)”
- “Correct, as I said before sales of similar properties is the driving force. In some cases adjustment have to be done for different factors that may impact the value of the property. It could be near a cemetery, therefore, a negative adjustment would have to be made to the property to compensate for location”
- “So, the majority of the value of my home is based on the market demand for houses of my type in the area”
- “Say all of the houses of my type were valued at $250,000 in 2016 and then Justin Bieber or Beyoncé or Google moves in and the market gets hot for my neighbourhood and between 2016 and 2020, lots of people with similar homes to me are now selling their homes to people for $400,000 and, because of this, on Jan 1 2020, the value of my home would be assessed at $400,000”
- “That would influence the assessed value.”
- “Does that mean MPAC will assess my home at $400,000 (+ or – the adjustments) because that’s what houses like mine are going for at the time”
- “You are correct.”
- “For more discussion please call 1 866 296 6722”
- “So for tax purposes, the increase of sales in my neighbourhood may increase my municipal taxes, because my home is now valued at 400,000”
- “It may, but the municipality may also lower the tax rates”
- “MPAC will find homes that sold as close to Jan 1 2020 as possible that are similar to my home within my area based on 200 factors and the median home sale of all the comparable homes, will determine the assessment of my home”
- “That’s correct.”
- “Is it going to be the exact sale price of that median home?”
- “It’s going to be a median value of sale prices of comparable properties.”
- “Right, and that can be up to 6 comparable properties in my area? Does it ever go higher than 6?”
- “It’s up to 6, it could be less, not more”
- “So for the taxes then… my taxes will be based on the phase in rate…so in 2021, I will be taxed on the 2021 phase in value of my Jan 1 2020 assessment value”
- “and that Jan 1 2020 assessment is based on the median comparable sales in my neighbourhood”
- “It will be yes”
- “So the sales of homes in my neighbourhood up to 2020 will determine, to an extent, my future property taxes”
- “Does my home only get compared to the market value of homes in my area that are similar to my home?”
- “So, say a lot of homes in my area are selling for really high values, but they aren’t homes that are similar to mine (via the 200 factors), then those sales won’t affect my home value”
- “MPAC will only compare all similar properties for the assessment”
- “To establish your property’s assessed value, MPAC analyzes sales of comparable properties in your area. In addition, we look at all of the key features that affect market value.”
- “But if I live in an area with very diverse homes and properties, the assessments will all vary because only the sales of similar homes are compared”
- “MPAC will always compare similar homes e.g orange to orange”
- “So if I live in a 1 floor bungalow, but live next to a 3 floor mansion, our sale prices won’t affect each other”
- “We have an online self-service application for property owners who wish to look up basic property assessment information. Residential property owners can review details about their property such as: • Current assessed value • Legal description • Year built • Square footage • Site area, etc., and assessment roll values for up to 24 properties of interest and 100 snapshots, free of charge”
- “To access our online AboutMyProperty log into www.aboutmyproperty.ca. Your Roll Number and Access Key are located on the right hand side of your Property Assessment Notice.”
- How properties are assessed: https://www.youtube.com/watch?v=Uikghy2Yz10&feature=youtu.be
- How to determine what homes you are being compared to and where: https://www.mpac.ca/PropertyTypes/PropertyAssessmentProcedures/AssessmentProcedureForTheDevelopmentOfHomogeneousNeighbourhoods
City of London
- “Tax rates are applied to the current value assessment of each property as determined by the Municipal Property Assessment Corporation (MPAC)”
- “A municipality determines its budget requirements each year. If the average value for the properties increases, the tax rate decreases to keep the same amount of property tax levy”
- Reassessments have no impact on the total property tax amount a municipality raises.
- Reassessments only affect the way the tax levy is allocated amongst the various properties and property classes.
- “How 2017 Tax Rates Compare to Last Year – While there is a phased-in assessment value increase of approximately 1.31% for residential properties overall, the total 2017 tax rate (1.360444%) is slightly less than that of 2016 (1.36261%). The combined effect of phased-in assessment values and changes in nominal tax rates is that property tax levels have increased approximately 1.1% for the average residential property”
- “On an individual level, most residential property owners will experience a tax change either above or below the average 1.1% increase. The tax change on any particular residential property will depend on whether the phased-in assessment changed more or less than the approximate 1.31% average increase” – Why?
- The 2017 residential tax rate of 1.360444% breaks down as follows:
o General rate is 1.181444%
o Education rate is 0.179000%
- “How is Property Tax Determined? A number of factors go into determining your yearly property tax rate: The annual budget for City services; which includes things like funding Police, Fire and Ambulance Service, Roads, Sidewalks, Transit, Parks, Trails, Museums, Recreation Centres, Libraries, and all City programs and services; Provincial taxes (to fund education); Your property value which is assessed every four years by MPAC”
- “The reassessed values will apply to the tax years 2017 through 2020. Increases in assessment values will be phased in over four years; decreases in assessment will be effective in 2017”
- “However, the MPAC notice you received last year does not automatically increase or change your property taxes. The bottom line is the City of London does not get one more dollar from the MPAC property reassessment. Property reassessment is a redistribution of who pays the municipal tax bill based on the value of the property owned – it has no effect on the overall tax amount collected.”
- The phased in rate will be the rate that the annual taxes will be based on. So the current assessment taken on Jan 1 2016 will affect the tax years of 2017, 2018, 2019, and 2020. The phase in rate for each year of the assessment will correspond with the tax rate of the same year. (i.e. 2017’s tax rate will be based on a homeowner’s 2017 phase-in value, not their 2020 value)
- City of London administration has tabled a multi-year budget that covers 2016, 2017, 2018, and 2019. The starting point for the multi-year budget as proposed to City Council this afternoon contains an average annual increase of 2.6%.
- This 2.6% equates to an annual average increase of $71 (based on the average home price of $221,000). This is considered the starting point as this increase results from existing programs and services
- City Council will still have to decide what new or expanded initiatives from their Strategic plan will be funded and this could result in an additional increase of 0.5% which equates to an additional $14 (based on the average home price of $221, 000). When combining these two, Londoners could be looking at an annual average of 3.1% ($85 based on the average home price of $221,000).
- Because of this annual increase, everyone’s tax level will go up, even though the rate is expected to go down. How much the level goes up will depend on the individual homeowner’s assessment.
Correspondence with the City of London
Matt: Dear London Tax Office,
I am the Research Intern for the Councillor’s Office and I had a quick question about the current 2017 tax rate for residential properties.
According to the London website,
“How 2017 Tax Rates Compare to Last Year – While there is a phased-in assessment value increase of approximately 1.31% for residential properties overall, the total 2017 tax rate (1.360444%) is slightly less than that of 2016 (1.36261%). The combined effect of phased-in assessment values and changes in nominal tax rates is that property tax levels have increased approximately 1.1% for the average residential property”
“On an individual level, most residential property owners will experience a tax change either above or below the average 1.1% increase. The tax change on any particular residential property will depend on whether the phased-in assessment changed more or less than the approximate 1.31% average increase”
Could you explain to me what the 1.1% tax increase is? According to this, the tax rate is going down from 1.3626 to 1.3604. If the rates are going down, then why are taxes increasing by 1.1%? Is a ‘tax level’ different from a ‘tax rate’? If so, what is the difference?
Is the tax level the actual amount of cash a home owner pays? So while the tax rate is going down, the cash value of the taxation, on average, is going up slightly? Is this because the value of homes are increasing so much? So because a homeowner’s home is worth a lot more, their tax rate will go down, but the actual cash they pay on taxes will be higher?
Jim Logan: Matthew, in reference to your e-mail copied below, what you are thinking is correct. The rate is going down but the value is going up. The net effect of the two in combination is that the tax level or the actual amount to be paid on average is going up by 1.1%.
Matt: Thank you very much for the quick response. So just to clarify:
Tax rate = the rate at which Londoners are taxed on their property
Tax level = the amount of actual dollars spent by Londoners
So while the rate is going down, the overall dollars are going up or down around 1.1%.
And this is probably because the market for homes is rising?
Jim Logan: That is correct Matthew.
How MPAC Assesses Property
How Your Property Tax is calculated
Example of Various Hypothetical Tax Scenarios Using the Example in the Video Above
City Budget = $1000
(2016 home values – hypothetical)
80,000 90,000 130,000 = 300,000
0.333% 0.333% 0.333%
267 300 433 = 1000
(all homes increase at the same rate)
85,000 95,000 135,000 = 315,000
0.3174% 0.3174% 0.3174%
267 302 429 = 998
(all homes increase, but at different rates)
85,000 95,000 140,000 = 320,000
0.3125% 0.3125% 0.3125%
266 297 438 = 1001
(Bottom and Top homes increase, mid homes stay the same)
85,000 90,000 145,000 = 320,000
0.3125% 0.3125% 0.3125%
266 281 453 = 1000
(Bottom and mid homes decrease, top stays the same)
75,000 85,000 130,000 = 290,000
0.344% 0.344% 0.344%
258 292 447 = 997
(Bottom and mid homes increase, top stays the same)
85,000 95,000 130,000 = 310,000
0.32% 0.32% 0.32%
272 304 416 = 992
“Data from the Canadian Real Estate Association’s (CREA) National MLS® Report for April 2017 shows the average sales price for a London and St. Thomas home was $352,560, still far below the national average of $536,028” (http://globalnews.ca/news/3502476/record-may-for-london-and-area-home-sales/)