07/01/2011

Ontario Needs a Stable Property Assessment System, an AMO Backgrounder for the Ontario Provincial Election 2011.
Property tax rates and a stable assessment system are critical factors in determining municipal revenues. Property taxes are also one of the most visible taxes citizens pay and property owners are acutely aware of how assessments affect their tax bill.

This visibility, combined with the volatility of market value assessment, means that property tax bear a high level of scrutiny, more so than other forms of taxation like income or sales tax.  It has resulted in assessment limitations in the United States and similar proposals to limit assessment amendments.

Caps limit the amount assessment values can increase in any one year to a fixed amount (say 5 percent) or to the rate of inflation.  Because taxpayers see rising assessed values as the reason for rising taxes, capping assessments appears to be an obvious solution. Taxpayers regard assessment limits as insurance against large property tax increases.  But are these assessmentcaps or other limitations equitable? Who ends up paying more and who pays less?

AMO commissioned a study by University of Toronto Professor Enid Slack, one of Canada’s foremost experts on the subject to answer these questions. The 2010 study provides strong evidence that such caps favour certain taxpayers over others. In particular:

  • property owners with high property values and high incomes are favoured at the expense of owners with lower property values and lower incomes;  
  • seniors are favoured at the expense of young homeowners; 
  • owners of waterfront and recreational properties are favoured at the expense of owners of single-family homes and condominiums;  
  • properties that sold a long time ago are favoured at the expense of properties that sold more recently. 
Although the property tax system is not perfect, the best way to deal with its weaknesses is through property tax credits, tax deferrals, and phase-ins rather than assessment capping. It is better to assist the taxpayers most in need than to tamper with assessment base and create tax inequities.

As the evidence in the Report shows, efforts to cure some of the challenges of market value assessment may only make matters worse. Assessment limits help those who are being made wealthier by the market at the expense of those whose property values have not changed. Capping may also have unintended consequences by helping those who need it least and increasing taxes for those it is designed to help.