By: Kim Downey, Broker

How are property taxes calculated?

Tags: real estate, property taxes, assessment, mpac

As you may, or may not have heard, MPAC has just announced that Home Values have gone up approximately 18%.    
Does That Mean Your Property Tax Will Go Up 18% this year?  The simple answer is no.  The reason being is that the Municipal Property Assessment Corporation only assesses properties once every 4 years, and then phases those values in over the next 4-year period.  The last time they made their assessments was in 2012 and those values were phased in over years 2013 to 2016.  The assessments they make this year will be phased in over 2017 through 2020.  So, if your home is assessed with an increase of 18%, it means your homes assessed value will only be increased by 4.5% per year.
So, the next question you might ask is “Does this mean my property taxes will go up by 4.5% per year?”.  The answer to that question is, not necessarily or, it depends. 
This is because of the way property taxes are determined using what is known as a municipal Mil Rate.  Every year when Town council meets, they determine, and approve, the amount of revenue required to operate the Municipality.  Then, they deduct other revenues such as licences, permits, grants etc. and the balance of the revenue required is the amount they need to raise from property taxes.    They take that amount and divide it by the Total Value of all property in the Municipality which gives them the Mil Rate.
Let’s say the Town’s Budget has required revenue of $1,000,000 (which needs to come from Property Taxes) and the total value of all Real Estate in the Town is $100,000,000.  That means the Mil Rate would be .010.
How does this translate into how much property tax you owe?  Here are a few examples to help explain…
Example #1
Assuming the current Mil Rate is .010, and during this tax year your home was assessed at $500,000 then your Property Taxes would be $500,000 x 0.010 (Mil Rate) = $5,000.
Example #2
Now let’s assume the Town’s Budget stays the same year after year, however, the assessed value of real estate has gone up 4.5% since last year.  That means that the Total Real Estate in the Municipality is now valued at $104,500,000.  So, take $1,000,000 Revenue Required divided by the $104,500,000 value of Real Estate = Mil Rate of 0.009569378  
With a small increase in the assessed value to $522,500 x Mil Rate of .009569378 is still comes to $5,000.  There really is no impact to your taxes over the previous year.
Example #3
What if the Town’s Budget actually goes up 4.5% next year?  This means they now need to raise $1,045,000.  Since house prices have gone up 4.5% this year (18% over 4 years) Real Estate is now valued at $104,500,000.   That means that $1,045,000 divided by $104,500,000 = Mil Rate of 0.010.  
Essentially the Mil Rate doesn’t change.  However, since house prices have gone up 4.5%, this puts your new assessed value at $522,500 x Mil Rate of 0.010 = Taxes of $5,225
Here is a table to show you the calculations a little clearer…

      EXAMPLE #1 EXAMPLE #2       EXAMPLE #3
Revenue Required by     City 
    $1,000,000 $1,000,000        $1,045,000
Value of Real Estate     $100,000,000 $104,500,000        $104,500,000
Mil Rate     0.010 0.009569378        0.010
Your homes Assessed Value
    $500,000 $522,500        $522,500
Mil Rate     0.010 0.009569378        0.010

Your Taxes Owing




This is just a clean and simple way to show the concept of how the Mil Rate is calculated, and how it is used to calculate your proportionate share of property taxes.   The reality is, your Town’s budget most likely won’t remain stable year after year and it’s possible the Real Estate Market will change also, so be prepared for some fluctuations. 
If you have any questions about this, or your home and real estate in general, don’t hesitate to give Team Downey a call at 905-556-0566