What is Property Tax and How to Calculate it?

February 9, 2021

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Now that you’re free from the hassle of buying your first home, it’s better to dive into the next chapter - property tax. The sooner you learn about it, the wiser your decisions will be. So without further ado, let’s dive in.

Learning Outcomes

In this quick guide, you’ll learn:

  • What is Property Tax?
  • How to Calculate Property Tax?
  • What is a Property Assessment?
  • Why is Property Assessment Necessary?
  • Who Assesses Properties?
  • What to do if in Disagreement with the Assessment Consultant?
  • Who is Eligible for Property Tax Exemption?
  • Have you Calculated Your Property Tax?

What is Property Tax?

Simply put, property tax is a tax paid on a property.

Talking exclusively about residential properties, you’re obliged by law to pay annual property tax on all your houses. In Canada, the property tax is collected by the municipality or regional municipality. This tax is highly based on the market value of a home.

For the local governments, it’s a source of income (revenue) to pay for various public services, such as the police department, schools, fire protection, roads, and sewers.

Note: property tax rates rely on the type of house you own, the city you live in, and the purpose of the property (for example, principal property, rental property, etc.).

How to Calculate Property Tax on Your House?

Property tax is calculated by multiplying the current market value of a house (of any type) with the toronto property tax rate of the region or municipality.

Property Tax = Market Value of House (MV) x Applicable Property Tax Rate (R)

For a house with a net value of $1,000,000 and a property tax rate of 0.6%, the property tax will be: $6,000 ($1,000,000 (MV) x 0.6% (R)).

An independent body assesses your home's market value, termed a property assessment (discussed in the next section). At the same time, the taxing authority determines the property tax rates. The rates are widely dependent on the type of property and its purpose.

The local municipality will send you a detailed tax statement detailing how your property tax would be distributed between services, like emergency services, library services, roads, traffic, etc.

Read more: Property Taxes Surged by 0.7% as the Toronto City Council Approved the Increase.

What is a Property Assessment?

Property assessment is the process of calculating the current market value of your house. An independent body will assess the market value of your home based on factors including the location (neighbourhood), size of the lot, building type, age, the building materials used, and any updates or additions to the property. Based on this fair value, you will then calculate your property tax at the preset rate.

Keep in mind that a property assessment is different from a home inspection. The latter is the process of examining the physical structure and systems of a house.

Why do we Need Property Assessment?

Every home has a different value. Even the house next to yours would have another value. Your neighbours might have the same structure, lot size, and age, but their homes may have different values. It could be because of some renovations they had done which you don’t require. These little things (as already mentioned above) matter. And so, it is essential to determine the current price of every property when paying property taxes.

Who Assesses Properties?

Property assessment is carried out by the municipalities, the provincial government, or independent organizations commissioned by provinces or municipalities.

What to do if in Disagreement with the Assessment Consultant?

Sometimes you might disagree with the assessment report. The consultant could have assessed it as higher or lower than its original market value. If that happens, you can appeal for a re-assessment. Appealing for a re-assessment could give a differing market value, which would reduce or increase your property tax for the year.

Who is Eligible for Property Tax Exemption?

Some properties get an exemption from annual property taxes. The properties may include religious buildings, low-income households, or federal/provincial properties.

Moreover, there could be different rules for principal residence exemption and secondary property. Local authorities set rules for property taxes. It’s best practice to regularly review the recent updates by the relevant authorities.

Have you Calculated Your Property Tax?

I hope you now have a good understanding of property taxes in Canada. And it would be easy for you to calculate and understand property taxes payable on your house. If you have concerns about property tax in your area, you may reach out to us. You can also use this property tax calculator to calculate property taxes for the year.

Image credits: Nattanan Kanchanaprat