Whether among assessing authorities, municipalities, professional associations or taxpayers, there is near, if not complete, unanimity that Ontario’s property tax system would function best with annual reassessments.
That annual reassessments best achieve the goals of providing certainty, stability, transparency, simplicity and other laudable objectives for any property tax system is indisputable.
The International Association of Assessing Officers recommends annual reassessments of all real property. Similarly, the Council on State Taxation states the ideal real property valuation cycle is annual and not longer than three years.
With Ontario moving into Year 9 of the current property tax assessment cycle without a general reassessment, at what point does the delay between reassessments in Ontario become unacceptable?
Can this delay violate legislative requirements, threatening the validity of the property taxation system?
Ontario’s property tax scorecard
The delay has compromised the property tax system in Ontario despite its robust legislative framework. Current market value and equity of assessment are two bellwethers of a quality property tax system.
By incorporating both, Ontario has done much to establish the foundation for a well-functioning property tax system.
Additionally, the property tax system in Ontario is buttressed by a strong centralized assessment authority, the Municipal Property Assessment Corporation (MPAC), which is tasked with conducting regular reassessments.
Considering the legislative framework and the vast resources and expertise of MPAC, it is a reasonable expectation this property tax system is structured to facilitate the fair and equitable system contemplated by market value-based property taxation.
Regrettably, the property tax system in Ontario has not seen a reassessment in nearly nine years, meaning Ontario has the most outdated assessments in Canada, causing a litany of systemic property taxation challenges.
Impact of the reassessment delay on the system
It is trite that the reassessment delay has had a deleterious impact on Ontario’s property tax system, including:
- property constructed near the Jan. 1, 2016 valuation date is often assessed similarly to newly constructed property as depreciation and functional obsolescence do not receive appropriate consideration;
- municipalities have a predominantly stagnant tax base;
- the ratio of assessed value to market value is dramatically different among and within classes of property;
- the ratio of assessed value to market value is dramatically different for some within the same property class;
- property of a design or function that did not exist in 2016 is valued by MPAC despite scant evidence of its Jan. 1, 2016 market value;
- property in areas developed in or after 2016 is valued by MPAC despite the lack of evidence of its Jan. 1, 2016 market value;
- the relatively greater appreciation in the value of properties in high-performing neighbourhoods or communities versus that experienced by other properties is not addressed;
- complexity and cost of property tax assessment appeal proceedings have increased.
These challenges evidence the increasing disconnect between the legislative requirements and the current functioning of the property tax system in Ontario. Notably, most, if not all, would be eliminated or greatly reduced by annual reassessments.
Requirements of the assessment act
The Assessment Act of Ontario requires the assessment of property be based on its current value and defines “current value” as “the amount of money the fee simple, if unencumbered, would realize if sold at arm’s length by a willing seller to a willing buyer.”
The act mandates regular reassessments and prescribes a Jan. 1, 2023 current value for the upcoming 2025 taxation year. All as expected for a well-functioning property tax system.
Where it gets interesting is in relation to the timing of reassessments. Section 19.2 of the assessment act provides that the minister of finance may make regulations, prescribing a day as of which property is to be valued for a taxation year.
The Government of Ontario has announced there will not be a reassessment for 2025 and has initiated a consultation regarding Ontario’s property tax system. Accordingly, the reassessment seems certain to be delayed to 2026, or even beyond.
In addition to the negative impact on the economic competitiveness of Ontario, this delay could cause Ontario to abandon one of the fundamental tenets of a market value-based property tax system.
This lengthy delay is an anathema to the fundamental objective of market value-based property tax assessment – equity – and creates a host of related challenges.
Absent regular reassessments, inequities of property assessment and accordingly, property taxation, abound.
Legal significance of the reassessment delay
Surely the legislators did not intend a nine-year or more lag between the valuation date and a tax year when they arrived at “current value” as the basis for determining the assessed value of property and fixed the reassessment at four-year intervals.
Similarly, they could not have intended that equity, a fundamental tenet of property taxation, succumb to the distortions and inequity that increasingly characterize the property tax system in Ontario.
It is laudable that a review of this system has commenced, but it is critical that this review, including the associated stakeholder consultation process, be expeditiously completed.
Failing that, the effluxion of time has consequences. Undoubtedly, at some point, ministerial regulation further delaying the reassessment will no longer be consistent with the requirements for regular reassessment, equity and current value as enshrined in the assessment act.
Robert Brazzell is managing director, Ontario property tax services at Colliers Canada. He leads a passionate team that assists real estate owners and their tenants in taking a proactive approach in reviewing and reducing their property assessments and taxation. A member of the Law Societies of Ontario, Alberta and Manitoba, and a former Acting Chair of a provincial assessment appeal tribunal, he takes an advocacy-first approach when reviewing and appealing property tax assessments. He is a member of NAIOP GTA’s Government Relations Committee and a frequent conference speaker and panelist whose insights into property tax matters have been shared by industry publications.
Damian Bernacik is director, legal services, property tax services at Colliers Canada. He is a lawyer with extensive experience appearing before the Ontario Assessment Review Board. His practice extends to all matters related to property taxation, including assessment appeals, municipal tax relief applications, tax exemptions and tax grants. He is committed to providing clients with comprehensive and effective property tax minimization solutions.