Ontario reassessments are anything but “stable”

In a perfect world, and in keeping with legislation, Ontario undergoes a general reassessment every 4 years. During a general reassessment the valuation date (or reference date upon which all assessment values are based) is updated. This process ensures assessments reflect contemporary market conditions and thus support a more fair and equitable distribution of property tax liability. In 2020, because of the COVID-19 pandemic, the reassessment slated for that year was delayed and has been ever since. As a result, assessments (and property taxes) in 2024 are still based on a value from January 1, 2016. Currently, the next reassessment is not just delayed, but rather it remains in limbo, with no guidance being provided as to when it may occur. Ontario is now operating on an eight-year reassessment cycle, making property values in Canada’s largest province (in terms of market value and population) the most outdated in the country. When discussing reasons for the delay, or a hesitance to reinstate consistent revaluations, officials frequently reference a desire to provide “stability” to taxpayers. The question however is whether the action (or inaction) taken by the government is really providing stability at all.

Practically speaking, a paused general reassessment means that no action is taken by the Municipal Property Assessment Corporation (MPAC) to update assessments to a new valuation (i.e., reference) date. However, reassessments are still occurring; albeit with a value from 2016. Any property that has seen a rezoning, an approved development application, a change in farm status, completion of a new improvement, demolition of an existing structure, or a data error on the assessment record is fair game for a revised assessment value. The forgoing list is not exhaustive but suffice it to say there are a great number of situations which could trigger a revised value, despite the lack of a general reassessment. So, while it may be perceived that reassessments are not occurring, this is not true. Reassessments are simply not being universally applied. In fact, as the years add up without a general reassessment, the number of properties that will have seen a value change, despite the government’s intent to achieve “stability,” continues to grow.

It is hard to imagine a real estate professional or property owner in Canada who doesn’t understand what has happened to real estate values in Ontario over the past decade. For context, according to the Toronto Regional Real Estate Board, the average home price in 2016 was $729,824, and for 2022 that number was $1,189,758, a 63% increase. For Ontario as a whole, the Ontario Real Estate Association reported average home prices of $524,000 for 2016 and $825,000 for 2022, an increase of 57%. Given these numbers, with a 2016 valuation date still being used, the current assessment values on properties in Ontario are woefully out of step with current market realities. So, while the stated goal was ‘stability,’ the market from which those values are determined is anything but stable. When the next reassessment finally comes, values are going to change dramatically.

However, just because values need to increase to reflect the current market, it does not necessarily mean that the property taxes paid will increase – a matter we shall discuss next.

Property Tax Impact

The second half of the property tax equation is the tax rate. Municipal governments propose, debate, and pass property tax legislation on an annual basis, reflecting the revenue needed to run the local government and the total assessed value of taxable properties. Each year, tax rates shift based on budget adjustments, the political will to tax specific sectors, and changes to assessment values (due to both physical growth and overall market changes). The decision to delay the general reassessment in Ontario was made by the provincial government, not local governments, and as such, there was no impact on the annual requirement to set property tax rates.

Property tax rates are not stable, they are dynamic, and so any action to delay a reassessment targets the assessed values, not the taxes paid. Property tax rates and property value assessments operate much like a seesaw, with property taxation being revenue neutral (taxing authorities do not collect more tax than is required to service their budget). If property values increase, then (all else being equal) tax rates decrease in lockstep. If the argument was that, by delaying a general reassessment, property taxes would be frozen, that was incorrect. If the belief was that a reassessment would cause property taxes to rise dramatically, that was also incorrect. Conventional wisdom in the property taxation field is that one should never apply an assessment solution (delayed reassessments) to a tax problem (stable tax burdens).

One of guiding principles of taxation systems is that a person’s actions (e.g., purchasing goods), earnings (in the case of income tax), or possessions (in the case of property tax) are proxies for their ability to pay tax. It stands to reason, then, that the more current and precise the proxy, the more accurate the representation of a person’s ability to pay will be. As an analogy, how would taxpayers feel if the federal government carried forward income tax filings from the previous year? How about from eight years ago? The tax rates would continue to be updated annually but whatever a persons’ earnings and deductions were from the past would serve as the basis to calculate current income taxes payable. In such a scenario, there would be those who would benefit and those who would suffer from not having their income tax calculations updated to reflect current realities. More generally though, what would be the public perception of such an action? If the measure of a tax system is the fairness of the distribution, could such an outdated system be considered fair?

The “stability” which was promised as a benefit of a delayed general reassessment is a misnomer. Reassessments continue to occur on many thousands of properties annually, merely the reference date upon which they are calculated is frozen. The delay does not stop the real estate market from changing, something that has most certainly occurred in Ontario over the past eight years. Finally, the actions of the government did not stop the annual process undertaken by local governments to set tax rates. This delayed reassessment has taken a single aspect of the property tax assessment equation, and let it fall to into disrepair. It has meant that assessed values are losing relevancy as indicators of actual property values, and as tools for distributing the property tax burden accurately and fairly. Furthermore, it has taken the job of preparing, reviewing, auditing, and appealing property assessments out of the hands of the professionals educated and trained to do so. Most importantly, it has taken away the right of a taxpayer to be taxed based on a proxy that is current and representative of their ability to pay.

Of the many words one may use to describe the assessment system in Ontario, “stable” is not one of them.