Reforming Ontario’s property tax system
HationalPost.com – Opinion
Published: Monday, March 22, 2010. Lorne Cutler
As the Ontario government grapples with ways of cutting their $25-billion deficit, they should note that there is one agency that that could be virtually eliminated overnight and few would shed a tear. It is the vast Orwellian bureaucracy known as the Municipal Property Tax Corporation (MPAC), which has the role of determining the value of Ontarians’ property every four years so that municipal taxes can either increase or decrease depending on how MPAC’s valuation of the property has changed relative to other properties in your municipality. If MPAC determines that a property’s value went up less than the average for the community, the municipal taxes will drop (before any tax increases implemented by the municipality) and if the property went up more than the average, the taxes will increase. It is a capital gains tax without the capital gains!
Not content to actually use the market to determine property values, every few years, MPAC’s army of 1,500 civil servants assesses what they think each property is worth. Even if you just bought your house last year, MPAC can decide you really didn’t pay the true value. In order to determine the value of over 4 million properties and fight assessment challenges, the agency spent over $180-million in 2008, an 11% increase from 2007. This cost doesn’t even include the millions in subsidies that the government has to provide to seniors so they don’t lose their homes because of rising property taxes due to MPAC.
MPAC is one legacy of the Harris government that Dalton McGuinty’s Liberals seem content to perpetuate. While they have made some minor modifications, they have not had the nerve to eliminate it. Even if MPAC assessments were all bang on, it would still be a massive bureaucracy that could easily be eliminated for great savings.
There are many ways of setting property taxes, from the current system to those based on property/residence size to those based on income. I can understand the government not wanting to completely revamp the system given the cost and time involved. But there is another method that is easy to implement, similar to the current system, completely transparent and doesn’t penalize homeowners for living in popular neighbourhoods.
The proposed system is based on everyone’s assessment changing each year by the average house price change for their municipality. By having everyone’s assessment change by the same percentage, every property maintains its same relative value to every other property. If average assessment increases by 5% in one year, the mill rate will drop by 5% so that the system is revenue neutral. If your municipality needs to increase taxes, they will increase the mill rate as required. When a property is sold, however, the new assessed value for tax purposes will be reset to the actual sales price and this new assessment will henceforth be the assessed value base. If you add an addition to your home, the assessed value of the house will increase by the standard value of the addition as determined from the building permit.
Only when someone pays a higher price for a house than the assessed value or puts on an addition will their taxes increase due to the assessment, but at that time the owner will have demonstrated their ability to pay higher taxes by spending over the assessed value to be in a popular neighbourhood. Since the buyer knows the current taxes at the time of purchase, they merely have to divide the price they paid by the assessed value and multiply this number by the current taxes to determine the new taxes. If they can’t afford the higher taxes, they don’t have to pay the sales price. No existing owner would face higher taxes just because their neighbourhood has become popular or trendy. If the real estate lawyer closing the sale couldn’t certify that the house sold at fair market value, MPAC would then come in and do an assessment of the property’s true value.
This system could be easily implemented by just rolling the clock back to the last time all assessments were in place and appeals closed; probably prior to last year’s round of increases.
The Federation of Citizens’ Associations in Ottawa, an umbrella group of Ottawa-based community groups, is onside with this system and a few Ottawa City councillors and MLAs have expressed support. To date, however, the McGuinty government has shown no interest in bringing in a fairer or more affordable municipal tax system, including this one. Perhaps the need to cut a $25-billion deficit will make them more serious about eliminating those government bureaucracies that Ontarians can do without.
– Lorne Cutler is an Ottawa-based independent financial consultant.
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