HOW TAXES ARE CALCULATED

(last updated July 7, 2003)

The Assessment Review Act created a number of categories under which various properties are classified.  The Municipal Property Assessment Corporation is responsible for determining the class or category for each property and the assessment for such property.  The City allocates taxes by applying a percentage tax rate to the assessment of each property.  Each class of property has its own particular rate as described below.  

For example, in Toronto, in the year 2002 an industrial property with an assessment of $ 1,000,000 would pay a tax of $71,422 per year  ($ 1,000,000 x 7.1421951 %), subject to capping limits described below the following charts. 

The Fairness for Property Taxpayers Act, 1998 established a cap or maximum tax increase on assessment reform-related tax increases (essentially tax increases that would be due to changes in assessment) for non-residential properties by restricting the ability of municipalities to change the above tax rates, so that such increases would be phased in over time.  Since such limitations prevent municipalities from collecting their full tax revenue, decreases in taxes, due to changes in assessment are often also phased in by many municipalities.  Therefore the "CVA" taxes resulting from the application of the above charts, could be substantially more or less than the actual taxes being charged to a property.  

As you can see from these charts, the catergory/class of the property has as important a bearing on the taxes paid as the assessment assigned to the property.  Some tax appeals turn on whether the property has been assigned the correct category.  One property owner we dealt with recently had her property assessed as having more than seven units when in fact she had less than seven.  As you can see, in Toronto the 2002 Multi Residential rate was 3.297% of CVA (this rate applies to complexes with more than six units), while the residential rate (for single family or complexes of up to six units) is 1.104 %, the correct classification can have a great impact on price.  It is not unusual to find properties being marketed for sale with uses or characteristics which have not been recorded correctly by MPAC - a potential tax problem for a new owner down the road if/when the error is corrected.

It is also important to bear in mind that in some jurisdictions, particularly Toronto, commercial/industrial properties bear an unreasonably high portion of the taxes compared to residential properties and in that sense are "overtaxed" (in fact as of 1998, 90% of business properties in Ontario were to at least some extent "overtaxed" in this respect).  

The tax burden carried by any particular class can be measured by a ratio (called the "Tax Ratio"), that compares the taxes paid by  a particular class when compared to the taxes paid by the residential class.  For example if the commercial class has a tax ratio of two a property in that class generally pays twice the taxes it would pay per dollar of value than a property in the residential class.  Please note that a "Tax Ratio" is not the same as the "tax rate".  The tax rate applied to a particular class is the amount of tax paid by every property in that class as a percentage of that property's assessment.  The Tax Ratio, is a comparison of the taxes paid by properties in different classes.

The Province of Ontario legislated a "Range of Fairness" for the the tax ratios of most non-residential classes.  Municipalities can lower but not increase the tax ratios of these classes, until they are in the range of fairness.  There are certain other regulations that have controlled the pace at which municipalites can move towards this range of fairness.

In addition, the Province prohibited municipalities from passing on increases in their budgets as increases in taxes on the commercial/industrial/multi-residential classes if their respective tax burdens are above the provincal class average.  These are called "Threshold Ratios".

These Ratios are set out in a table below with some comparisions between the City of Toronto and other muncipalities/regions.