No Time for Complacency on Ontario Property Taxes

Property owners and tenants responsible for paying property taxes in Ontario could be forgiven for thinking that there is nothing to do regarding their upcoming 2023 property tax assessment. After all, the province is about to enter year seven of what is normally a four-year property tax assessment cycle, and the last valuation date for existing properties was all the way back on January 1, 2016. However, as the market value of many properties continues to drift away from that last valuation, the importance of reviewing the status of your Ontario properties cannot be overstated. This is no time for complacency.

How did we get here?

Ontario’s property tax system is presently based on market values and a four-year assessment cycle, with the current cycle originally intended to run from 2017 to 2020, using valuations as of January 1, 2016.  Unfortunately, because of the effects of the COVID-19 pandemic, the province was forced to delay property reassessments and extend the current property tax assessment cycle – a defensible decision in the minds of most taxpayers when the measure was first announced in 2020. Lockdowns were prevalent, non-essential personnel were working remotely, and simple daily activities, like shopping for groceries, had suddenly become a challenge. 

For similar reasons, the provincial government’s further delay of a province-wide property value assessment in 2021 was hardly surprising. However, the decision to extend that deferral to include both the 2022 and 2023 taxation years appears, at least in hindsight, to have been a hasty one. Property taxes for 2023 will be based on the same valuation as in prior years, despite many organizations in Ontario having returned to activity levels close to—and in some cases, in excess of—their pre-pandemic operations, calling into question the wisdom of the government’s approach to the valuation issue. 

While confirming that the current assessment cycle will remain in place for at least another year provides a certain degree of tax certainty for property owners and tenants, the additional delay is concerning, especially for owners of property types that have been significantly impacted by the pandemic over the past few years, including brick-and-mortar retail and properties in the hospitality, travel, and tourism sectors. 

The reassessment delay means that property taxes will be based on an assessment value that is seven years removed from the previously determined market value – a figure that could be wildly different from current market value. Consider how residential property values have changed since 2016. The value of business properties, on the other hand, may have moved markedly in either direction over that time. In its most recent fall economic statement, the provincial government declined to indicate when the next property tax assessment cycle will begin, further adding to the uncertainty for taxpayers and creating the potential for inequities in property tax assessments in the long run. 

Uncertainty Reigns

The uncertainty for taxpayers is not limited to when the next assessment cycle will begin, the valuation date to be used, or the reassessed value of a property. Indeed, Canada’s aggressive immigration targets and Ontario’s new measures to facilitate the building of more homes have raised new concerns about the level of taxation that will be required to support these initiatives and allow municipalities to provide essential services. Mayors from various municipalities across Ontario have mused publicly about having no choice but to raise property taxes, and some municipal budgets for 2023 already include such increases. 

The province has also contributed to the high level of uncertainty surrounding Ontario property taxes in other ways. In its 2022 budget, the provincial government announced that it had completed its Property Assessment and Taxation Review, with input received from several different stakeholder groups.  However, while the government noted that its decisions going forward will be informed by the results of that review, it failed to provide any details on what might be decided.

Adding to the mystery, last fall’s economic statement only noted that the government intends to automatically match property tax reductions for small businesses in all municipalities that adopt the small business property subclass – a measure that was first proposed over two years ago and came into effect for 2021.

The province has several options to address the current situation, but it hasn’t provided a clear indication of its plans. Will Ontario introduce a shorter valuation cycle? If so, will that be a one-time adjustment or a permanent change? Other Canadian provinces use valuation cycles between one and three years. If made, how would such a change impact a taxpayer’s right to appeal?

Due to the uncertainty, it has perhaps never been more difficult to budget an organization’s future Ontario property tax burden—at least beyond 2023—with the property value, tax rate, and length of the assessment cycle all currently unknowns.

This high level of uncertainty and apparent lack of direction by the province might lead many property owners and tenants to the conclusion that nothing can be done to address their Ontario property tax situation.

Common Misconceptions

In addition, taxpayers might be tempted to think that their property taxes are lower than would otherwise be the case due to an assessment value that is out of date and clearly lower than the property’s current market value – a common misconception. 

The valuation is just one element in the property tax equation. In Ontario, the Municipal Property Assessment Corporation (MPAC) determines the assessment value for all properties, but the various municipalities set municipal tax rates based on their revenue requirements to provide municipal services.  The province legislates the framework under which property taxes are levied and sets education property tax rates.

In simplest terms, while a dramatic increase or decrease in the valuation of a property could affect an organization’s property taxes, the tax rates set by the province and municipality are an equally important part of the calculation. If property values are higher due to a new valuation, the impact of that change in value might be offset by a reduction in the tax rates for that particular property class, and vice versa. In the end, it’s the level of revenue required to provide an adequate level of services by both the province and the municipality where a property is located that will determine the property tax amount.

The value of a property assessed by MPAC can be challenged, resulting in a change to the property tax owing. Indeed, there are usually multiple ways to calculate a property’s value, and it’s not uncommon for two buildings in the same vicinity to have widely different market values, which may or may not be reflected in recent selling prices. Expert analysis is often required to determine the correct approach to the valuation of a property and an appropriate market value. Unfortunately, many taxpayers are under the impression that there is currently no basis to challenge a property value, given that MPAC hasn’t issued a reassessment since 2016. 

Appeals Still an Option

In fact, there are several reasons Ontario taxpayers should consider filing an appeal in this seventh year of the present assessment cycle. For example, if the pandemic or other factors have had a detrimental impact on the value of a property, an appeal should be considered, even if an appeal was previously filed and resolved in an earlier year of the current cycle.

In addition, appeals should always be considered whenever any of the following has occurred:

  • A new property has been acquired in the past year;
  • There has been a significant change in use in all or a portion of a property;
  • Physical changes to a property have been experienced, such as demolition, contamination, addition, and renovation; or
  • There has been a recent appeal decision on a neighbouring property.

Appeals or Requests for Reconsideration can still be filed for 2023 assessments under the extended cycle. Taxpayers have an annual right to appeal property taxes in Ontario, regardless of assessment cycle length. The deadline to file is March 31, 2023.

Furthermore, in the event that the province decides to further extend the assessment cycle (as was done last year), an appeal filed for 2023 would automatically apply to 2024. Property owners and tenants can also benefit from successfully challenging an assessment value in the current cycle, since this will establish a lower valuation base for future assessments or the potential calculation of any phased-in increases for future years.

Eligibility for Rebates

Property owners are also reminded that rebates may still be available to recover Ontario property tax paid where a property has experienced a significant change in value over the course of a year due to specific events.

In addition to the ongoing impact of the pandemic, various significant events can give rise to municipal property tax rebate eligibility, including:

  • Demolition of a property or any part of a property;
  • Damage to property due to fire or other causes, such as flooding, storm damage, or other “Acts of God,” where the property or a portion of the property is rendered substantially unusable for the purposes for which it was used immediately prior to the damage;
  • Repairs or renovations that are extensive enough to prevent the normal use of the property, or a portion of it, for a period of three months or more; and
  • Vacancy lasting 90 consecutive days or more in a commercial or industrial space (only available for qualifying circumstances in certain municipalities).

Applications for rebates for municipal property tax paid in 2022 must be filed by February 28, 2023. 

Ryan continues to monitor the situation in Ontario closely and will advise taxpayers once information on the next Ontario property tax assessment cycle is made available. We also continue to work with our clients to ensure only fair property tax amounts are assessed. 

For further information or to discuss your property tax situation in either the current or a future assessment cycle, please reach out to your Ryan representative.

Technical Contact:

Paula Kalogritsas
Principal, Regional Leader, Property Tax