Property owners likely to be paying more than they should be include half of Toronto condo owners, according to a Globe article.Carlos Osorio/Reuters
Imagine an out-of-date tax structure that leaves a lot of people paying less than they should. At this time of affordability concerns that sounds pretty good – for them, at least. But what if that missing tax revenue is being covered by other people, who are paying more than they should? Suddenly this seems grossly unfair.
Unfortunately, this is not just a thought exercise. This is exactly the situation facing people in Ontario, where municipal property reassessments have not been done in a decade.
Having left the system on hold for so long, the government says somewhat unconvincingly that it is consulting on how best to resume normal assessments. Here’s some free advice: just do it. There’s no excuse for continuing to force some people to carry an undue share of the tax burden.
The Globe and Mail has been running a series of articles and columns recently on how to overhaul the tax system to boost productivity, improve fairness across generations and encourage construction of rental homes. But the existing system also has to be run better. And the situation in Ontario is a good place to start.
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Property taxes in Ontario are determined based on two factors: the local tax rate, as set by local politicians, and the estimated value of the property. That value is determined by the Municipal Property Assessment Corporation, which answers to the province.
Until 2016, MPAC did reassessments every four years and phased in any changes in value over the ensuing four-year period. However, the 2020 assessment was derailed by the COVID-19 pandemic. There has not been another one since, even though property values have changed a lot over those 10 years.
The value of a property is used to determine how much tax it is levied because that value has been seen as a proxy for owner wealth. It’s an imperfect rationale – other approaches could involve taxing property size, which affects the cost of providing municipal services, or taxing improvements to the land or property – but this is longstanding policy in Ontario.
It’s important to note that a changed value assigned to a property by MPAC does not, in and of itself, lead to property tax increases or decreases. In Ontario, what matters is how its value changes compared to the average in that community. Properties that go up more than the average face higher taxes. Those that lag the average get tax cuts. The pie remains the same size but its composition gets rebalanced.
And therein lies the problem. The properties with above-average value increases since 2016 are not being charged the higher taxes they should be. These fortunate people are being subsidized by people whose properties had below-average appreciation. Let the unfairness of that sink in.
At this point it’s impossible to know for sure just who is in which group. But since not all properties in the province have appreciated at exactly the average over the last 10 years, not doing reassessments has created winners and losers. And that situation is being exacerbated the longer the system is left out of balance.
According to Paul Sullivan, a B.C. property-tax consultant quoted in a recent Globe story, property owners likely to be paying more than they should be include residents of a Toronto inner suburb called Scarborough and fully half of Toronto condo owners.
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This issue affects commercial properties as well. Mr. Sullivan believes that many small main-street retailers are paying more than their share. At the same time, reassessments could hurt other small retailers, because zoning changes to what is allowed near transit, for example, could lead to higher tax bills.
The situation is undoubtedly thorny. Ontarians who are reassessed and face spikes in their tax bill will not be happy. But these same people have been getting a break for years. And the money has to come from somewhere, so contriving some way to cushion them from any coming increase just perpetuates the unfairness of the current situation. There are no easy solutions and the government is simply making the problem worse by letting it drag on year after year.
It’s wrong to argue, as Ontario Finance Minister Peter Bethlenfalvy did when glossing over government’s lack of urgency, that “what people want is certainty” in this time of economic peril. In fact, the looming threat of a tax increase is the opposite of certainty. Even if that were not the case, stability cannot come at the price of unfairness.
Editor’s note: This article has been updated to correct the reference to MPAC’s full name – the Municipal Property Assessment Corporation.