Five Myths on Property Taxes and Assessments: Busted!

Myth #1: If my assessed value goes up, my property taxes will go up.

To understand property tax increases, it's important to know that if your property's value rises at the same rate as the average increase in the area, your property taxes will only reflect the change in the municipal budget. 

However, if your property’s value increases more than the average, you’ll face a twofold rise in taxes: 1) the municipal budget change and 2) the percentage by which your property’s value exceeded the average increase. 

Myth #2: If I rezone my property or the city rezones my property, my property taxes will automatically go up.

There are many legal instruments that impact the future potential of a property. 

Properties are valued at Highest and Best Use (HBU). If the allowable use of a property changes to a higher density use, then it may be the case that your assessed value will increase. Sometimes the probability of this change of use becomes apparent prior to an actual rezone of the property, and your assessed value will still increase given the certainty of the new use being achieved.

Myth #3: If I renovate my property, it guarantees the property value will increase.

Unfortunately, not all renovations guarantee that your property value will increase. 

An improvement that is perceived to create value for a property, such as an addition or an extensive renovation, will be captured in the assessed value of your property. 

The ultimate debate when it comes to renovations of properties is: to what degree does the market generally perceive the changes you made to have value vs. the value you perceive they have? In other words, you may choose to add marble flooring to your businesses’ bathrooms and custom workspaces because you, as the property owner, feel that is a valuable change to the space. However, the current market may not agree that those renovations were valuable. 

Myth #4: If I sell my property, the property taxes will automatically increase. 

This is situation dependent. Assessors are bound by equity, which means that all like properties must be valued similarly. To chase a sales price of a single property that sells, while not increasing all similar properties, would create an inequity and grounds for appeal based on fairness. 

For income-producing properties, the “leased fee” interest could justify an adjustment to a sale price, where market rents in the “fee simple” are less. In other words, if a property sells with above market rents, then it may sell for above market value. Assessed values are generally at market value. Oftentimes, the sale price can be used to lower an assessment even though a property sells above the current assessed value.

Myth #5: If I have a long-term lease in place, an assessor cannot value my property as a redevelopment site.

An assessor can still value a property as a redevelopment site even if you have a long-term lease in place. 

Assessing authorities typically value in the “fee simple” interest, which means contractual obligations, such as leases with tenants, do not count. For this reason, the owner’s agreements are deemed to be a private arrangement and must not affect the value in the “fee simple,” as the purpose of assessments is the fair distribution of taxes. If property owners were allowed to encumber their properties with private agreements, it would have the potential to distort the fair distribution of taxes.

There are many myths in the world of property tax and assessments. Working with professionals in the tax industry who have studied the case law and understand regional legislation is key to keeping yourself informed, prepared, and operating within all legal parameters. Paul Sullivan’s Property Tax team comprises many industry experts who have extensive knowledge of these topics and have supported many clients in all aspects of property tax.

To learn more about how Paul and his team can support your business with property taxes, reach out to paul.sullivan@ryan.com.

Paul Sullivan
Principal and Regional Leader
Ryan
604.331.7300
paul.sullivan@ryan.com
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