March 11, 2014
Understanding BC's Property Tax System
Once a year, property owners fork over the amount cited on the property tax notice to help fund local programs and services. Police, fire protection, emergency rescue services, sanitary services, parks, libraries, road maintenance, schools, and hospitals are some of the community services funded by BC property taxes. Or at least that’s what most people believe. Here is a quote from the Federation of Canadian Municipalities:
“Unfortunately, much of the way forward is uphill. Canada’s tax system takes too much from our communities, and puts too little back. Without access to revenues that grow with the economy, and without long-term investment from other levels of government, municipalities continue to face a gap between their responsibilities and their ability to pay.
Our current system, in which municipalities collect just eight cents of every tax dollar, is not sustainable. Nor is it realistic in a world where cities function as economic engines and centers of innovation.
This fiscal imbalance erodes Canada’s competitiveness, while placing a growing burden on property taxpayers, straining local services, and forcing municipalities to delay essential infrastructure projects.”
Did you see that? According to the Federation of Canadian Municipalities, only eight percent (8%) of your property tax actually goes to the municipality in which you live. The balance of the funds go into other provincial, regional, and federal coffers. This 8% value is up for debate however, as the Canadian Federation of Independent Businesses estimates the municipality’s ultimate share to be as high as 15% when transfer fees and other sources of revenue are considered. Let’s just say the value is between 8 and 15%.
Obviously the property tax process can be a little confusing; why, for instance, do you have to pay more than your neighbour down the street? And why is your assessment higher than it was last year? Who, exactly, decides how much you have to pay? Now we know how much of our tax goes into the communities we live, let’s take a closer look at some of these other questions.
Setting the Property Tax Rate
Every year, property tax rates are set for the various municipal and regional services we receive as homeowners. The rate depends on the costs of providing these services. If this cost has increased, your tax payable might increase over the previous year, irrespective of the underlying real estate assessment.
Different municipalities offer different programs and services: your property tax notice will list the items that are paid for through your property taxes.
Determining Your Property Tax
As the name implies, property taxes are determined based on an individual property’s characteristics. Tax rates are usually applied to the assessed value of a property, including the land and any buildings or structures on the land. This explains why different landowners are charged different amounts. A property with a higher market value will pay a higher amount of property tax.
What’s Behind the Assessed Value
Your taxes are based on your assessed value—but who decides what that is?
The group behind the assessed value is BC Assessment, an independent provincial Crown corporation charged with the task of assessing property values throughout British Columbia.
In assessing a property, BC Assessment will generally take into consideration all those aspects that will affect market value: the property’s location; size; topography; shape; use; and, the size, age and condition of buildings and structures on the land.
Although the assessed value is mailed out at the end of the calendar year, it is based on the state of the property as of July 1st of that year. Or rather, the taxes you paid in any given year are based on the value of the property as determined by BC Assessment as of July 1st of the previous year.
How the Assessed Value is Determined
BC Assessment reviews nearly two million properties every year. That’s a lot of information to process.
While Assessors don’t spend as much time in the field as they did prior to our digital age, they still need to inspect properties from time to time in order to verify data. Although municipal and provincial agencies provide such information as building permits, zoning etc., there is no substitute for a physical inspection.
BC Assessment also uses sophisticated computer modelling programs that utilize a wide variety of inputs, the most important of which are your property’s characteristics and recent comparable sales from the neighbourhood.
There are several reasons that your property taxes might change year to year. A change in tax rates can change the amount of taxes you pay. Renovations or other improvements that increase the value of your property or land can bump up the assessed value of your property.
There is another reason that the assessed value might increase, causing your tax assessment to rise—one that can happen even if you haven’t changed a single thing about your property. Assessed values can change alongside the real estate market: if your property is situated in a market that is rising, property values can increase significantly year over year.
Is the Assessed Value the Probable Sale Price Value?
We saved the golden question for last: is the assessed value the same as the market value?
The BC Assessment website states that Property Assessment Notice reports the fair market value of a property. However, considering the sheer volume of properties BC Assessment must evaluate and the fact that properties are not consistently inspected, the assessed value is best considered as a guide only.
The potential disparity between the assessed value and the market value increases in markets where the liquidity is lower. A neighbourhood or region that has a high volume of transactions provides for a high volume of market evidence. The Assessor can use this ‘comparable transaction’ evidence for other properties within that same market. Areas with fewer trades however will make the assessed value much more unreliable as an indicator of true market value.
Finally, the assessed value of your property for tax purposes might be different from the value determined by a mortgage lender or a real estate broker. The most obvious reason is that the assessed value is done on an annual basis only. Furthermore, brokers and lenders will dedicate more time towards researching the property and are able to use the most recent market information to determine the market value. If values differ, don’t be afraid to ask for an explanation to understand the valuation process.
Researched and authored by: Alan L. Johnson of Colliers Unique Properties
1. Federation of Canadian Municipalities