When you move to a new home, even if it's in the same province, it is important to understand the applicable property taxes. Municipalities may have different property assessments and rates vary widely across Ontario, so be sure to factor this additional expense into your budget. Keep reading to learn more about the basics of property taxes, how they are calculated, and what rates you can expect in different areas of Ontario.
How Does Property Tax Work?
Property taxes are charged by your local municipality each year. The funds collected from this tax can be used for everything from funding education and supporting neighbourhoods to building roads.
Every year your municipality’s city council decides how much revenue is needed from property taxes so that they can fund projects and other additional services that they provide. Once that need is determined, they will set the Residential Tax Rate that will allow them to collect those funds.
You must also factor in the Education Tax Rate, and this rate is the same across Ontario. Any revenue generated from this portion of the property tax will fund regional elementary and secondary schools.
After the rate is determined, the property tax you owe is based on the most recent home value assessment.
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Who Sets The Property Tax Rate?
The Municipal Property Assessment Corporation, or MPAC, is responsible for assessing the value of your home. They will consider many factors, including lot size, current condition, renovations, special features like pools, and comparable properties to determine the value. For example, your home may be worth more if it has a basement or if you have done any structural updates to the property.
The property values can also be inflated in neighbourhoods that are rapidly increasing in value. If local home prices have surged in a short time, there may be a large jump in the property assessment the following year.
If you would like to learn more about the specific tax rates in your neighbourhood, reach out to your municipality's Treasury Department. They may even have a property tax calculator on their website that will help you estimate your annual cost.
Property Tax Rates Across Ontario Cities
Since every municipality has discretion when it comes to setting property taxes in Ontario, rates can vary pretty widely. Here is a guide to different property tax rates across the province:
What Are Property Taxes in Toronto?
In Toronto, the property tax rate is 0.599704%. That means if your home is valued at $600,000, you will pay an annual property tax of $3,598. Toronto has the lowest property assessments in all of Ontario!
What Are Property Taxes in Brampton?
If you live in Brampton, the property taxes are much higher at 0.953306%. For a $600,000 property value, you will pay $5,719.
Brampton's property tax rate is high because the housing values are lower than those in neighbouring municipalities like Oakville and Mississauga. Brampton is a more affordable place to buy a home, but taxes must be higher to cover the cost of servicing those properties.
What Are Property Taxes in Mississauga?
Mississauga property tax rates fall a little closer to the middle at 0.785962%. For that same $600,000 home, you will pay $4,715 – more than in Toronto, but less than if you had the same property assessment in Brampton.
What Are Property Taxes in Hamilton?
Hamilton has one of the highest property tax rates in all of Ontario. Their rate is 1.188611%, which will require someone with a home valued at $600,000 to pay $7,131 each year.
Almost 90% of all of Hamilton's revenue comes from property taxes, and they are one of the few places that fund social services from this income.
What Are Property Taxes in Ottawa?
The province's capital has a property tax rate of 0.959505%. For a $600,000 home, this would cost $5,757 each year.
What Are Property Taxes in Richmond Hill?
Richmond Hill has relatively low property tax rates, coming in at 0.653108%. In this city, you would only pay $3,919 in property taxes on your $600,000 home!
What Are Property Taxes in London, Ontario?
If you decide to move to London, Ontario, expect to pay some of the highest property taxes in the province. Their rate is 1.348259%, so you will pay $8,090 if the value of your home is $600,000.
What Are Property Taxes in Kitchener?
Kitchener’s tax rates are also on the higher side at 1.099498%. If your home is worth $600,000, expect to pay $6,597 in property assessments.
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Why Do Property Taxes Vary by City?
You may be wondering, why do property taxes vary depending on the city you live in?
The key is that the funds collected from the property assessment generate revenue for that specific city council. As a result, they will set a tax rate that will allow them to float their operating budgets and have sufficient cash on hand.
Local governments have quite a bit of discretion regarding this, and some city councils like those in Toronto will purposely keep the residential tax rates low to ensure re-election. Likewise, lower property assessments can attract additional buyers to the city.
What Does Property Assessment Value Mean?
As we mentioned earlier, the MPAC - or Municipal Property Assessment Corporation - assesses the value of your property every four years.
For example, the values from the 2016 assessment will be used through the end of 2020. This allows assessment increases to be introduced slowly over the four years, increasing predictability and stability for the residents that live there.
You can find your property value on your annual property tax bill or the property assessment notice provided by MPAC.
How Does MPAC Assess Property Values?
There are three ways that the MPAC can calculate these values: the direct comparison approach, the income approach, or the cost approach.
Direct Comparison Approach
The direct comparison approach applies to all residential properties. It is based on comparing similar properties that sold in the same year of the assessment. Note that the final assessed value may differ from the market or resale value.
For rental properties or offices that exist to generate income for a business, the MPAC will utilize the income approach. They will analyze the income generated by the property each year - in combination with the sales price - to establish the property assessment.
What if your property doesn't fall into the residential or income-generating category? If your property is very unique and rarely traded, it will be valued using the cost approach. With this method, they determine how much it would cost to rebuild your property then subtract depreciation.
This property assessment includes the cost of the land and all improvements, but it does not consider the total market value.
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