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(Fernando Morales/The Globe and Mail)
(Fernando Morales/The Globe and Mail)

Why do property taxes vary so widely in the city? Add to ...

Question: Why do taxes very so widely in the city? It is obvious even from the examples in the Globe and Mail that market value based on sales has little relationship to assessments. One is not allowed to compare to other areas when appealing.

Answer: You’re right, there is a large range in property taxes throughout the City of Toronto. To many, it may seem like there is no rhyme or reason to how taxes are determined – but I assure you there is.

Property taxes in the city of Toronto are calculated by multiplying your home’s MPAC (Municipal Property Assessment Corporation) assessment value by the City’s predetermined tax rate and the province’s education rate.

For the 2013 tax year, the rate determined is approximately 0.75 percent of your property’s assessed value. This rate is broken down into two parts: about 0.54 percent for the city tax rate, and another 0.21 percent for the province’s education tax rate. So for a house assessed by MPAC at $450,000, the annual property taxes for this year would be about $3,375.

The next logical question would be “How are the tax rates determined?”, so I asked Casey Brendon, Director of Revenue Services for the City of Toronto to shed some light:

“The residential tax rate includes a component for the municipal portion of taxes, and a component for the education portion of taxes,” he said. “The municipal portion of the tax rate is set by Council each year, depending on budgetary requirements. Once Council has established its annual budget, the municipal tax rate for each class is determined in an amount that will raise the required amount to fund the various operating programs, services, and capital requirements of the City. This includes amounts needed for all City programs, including police, fire and emergency services, parks and recreation, transportation, libraries, transit, social assistance programs and housing, etc. The education portion of the tax rate is set by the Province of Ontario, in order to raise amounts needed for education purposes across the Province.”

He adds, “The residential tax rate applies to all residential property within the City of Toronto, regardless of location and regardless of the type of residential dwelling type. Therefore, with a single residential tax rate, the only variation between the property taxes paid for a property is the Current Value Assessment of the property.”

Now that we know about tax rates, let’s discuss how your home’s value is assessed by MPAC. Similar to methods used by many appraisers, there are several factors in determining property value. Physical factors such as age of building, construction quality, finishes, basement, garages, pools and more help to determine the value of the structure. Environmental factors also come into play when determining value; location, lot size, traffic patterns, and surrounding green space to name a few.

You’ve mentioned that you see little correlation between market value and assessed values of a property. I believe this is not the case, there is definitely a relationship between the two, but Toronto’s hot market often highlighted by bidding wars can drastically increase a property’s market value. It should be noted, your home’s assessed value can be lower than market value and this may have a favorable effect on your annual property tax.

Of course, your property value could be assessed for more than you think it is worth, which would lead to an increase in property taxes. MPAC allows you to appeal the assessment through a “Request for Reconsideration” (RfR) free of charge. The process allows you to access information on comparables in your immediate neighbourhood in order to help you justify your appeal. I’ve personally been through a Request for Reconsideration before, the tools and resources are readily available, making the process less cumbersome than you might think it to be.

The last part of your question deals with comparing properties in different neighbourhoods. As I mentioned previously, environmental factors are considered when determining the value of a property – one of which is location. For example, all things considered, a home in Rosedale will always be worth more than a home in a less desirable neighbourhood.

Ricky Chadha is a broker with Royal LePage Estate Realty in Toronto, and specializes in applying social media and other digital tools to the business of real estate. You can find Ricky on Twitter @your416 or at his website RickyChadha.com.

Submit your questions to realestateexpert@globeandmail.com. Our Real Estate Expert will answer select questions, which could appear on The Globe and Mail website. Your name will not be published if your question is chosen.

The content provided in The Globe and Mail’s Ask a Real Estate Expert is for information purposes only and is neither intended to be relied upon nor to be a substitute for professional real estate advice.

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