Property Taxes and Real Estate Taxes In Canada
Taking that first step on the real estate ladder can mean a steep learning curve when it comes to financial terms and how they affect you. One common area of confusion for those entering into the real estate market is the terms real estate and property taxes, which are often used interchangeably. So the real question is, are “real estate taxes” and “property taxes” the same? In short, yes.
Is Real Estate Tax the Same As Property Tax?
Real Estate Tax Is A Type of Property Tax
Property tax is an annually billed tax paid on property owned by an individual or an entity.
A Canadian household pays three taxes:
- Property tax
- Sales tax
- Income tax
While a property tax does apply to real estate, it can be applied to items other than real estate depending on your jurisdictions’ laws. These items can include larger possessions such as a car or boat. That said, the most common property tax is that which is paid on real estate, which is why the terms property tax and real estate tax can both be used in reference to the taxes paid on real estate.
However, the term real estate can’t be used in reference to property tax that is paid on items that are, of course, not real estate.
Property Tax Rates In Canada
When researching property taxes – what they are and how they will affect your finances – you may come across the terms mill rate and mill levy. These terms relate to how your real estate tax is calculated. The mill levy is the tax rate imposed on your property value, with one ‘mill’ representing one-tenth of one cent. This means that if real estate is valued at $400,000, the associated mill rate would be $400. This then applies to the overall value of the jurisdiction and helps determine how much revenue is needed in order to run necessary functions for the community. This revenue is then passed onto the property owners in the region.
Calculating Property Tax Rates
Property taxes are calculated based on the value of the real estate property, both the land itself and any buildings on it. A property tax is a combined rate for both municipal and provincial property tax rates. The rate is determined based on the value of the property and whether the real estate falls under the residential or non-residential category.
After the initial appraisal of the property when purchased, an assessment by an official tax assessor visits the property every one to five years to update the value of the property and adjust the property (or real estate) taxes accordingly. The assessor can determine the property tax and value of the property through three methods: by performing a sales evaluation, following the cost method or estimating the amount of income that would be generated should the property be rented.
A good way to see if your property taxes are reasonable is by checking your tax card for comparable homes and their associated real estate taxes. Reducing your property taxes might be possible by looking for local and regional tax exemptions that apply to your property.
Factors That Can Affect Property Tax Rates
As a function of your local government, governmental changes can affect the rate of your property tax. Some of the common reasons why property tax rates may shift include:
- Reductions in governmental revenue from grants or fees. Municipalities rely on the fees and grants allocated to them by provincial and federal governments. If the number of funds allocated changes, municipal property tax rates often shift accordingly to accommodate for this change.
- Increases in municipal spending. The flip side of reduced municipal revenue is increased spending. Though opposite in most respects, this scenario also has an effect on the real estate tax rate (almost always an increase).
- Failure to pay property taxes. In some municipalities, there are penalties associated with a property owner’s inability to pay the mandated taxes. As a result, the owner will often see an increase in the amount of property taxes required either as a function of a fixed penalty or an interest rate on the amount owing. Luckily, this factor is entirely in the hands of the property owner – as long as real estate taxes are paid completely and on time, additional expenses can be avoided.
- Exempt properties. Some properties are deemed as exempt from the standard property tax rate for a variety of reasons, but largely because these properties have been deemed as valuable to society and further draw from the income of these properties would have a negative impact on these valuable contributors. Some examples of these properties could be farm residences, hospitals, churches and schools.
There are many other scenarios that could affect the property tax rate within a municipality.
The Purpose of Property Taxes
To a property owner, real estate taxes can seem like a fair amount of money if you don’t know exactly where it’s going. However, property taxes paid are another source of income for governmental bodies. The money is then redirected to the various needs throughout the area, such as the construction and maintenance of schools, city amenities, emergency services and more.
When you pay real estate taxes, you are contributing to your community services and infrastructure and, in turn, maintaining or even increasing the value of your home by creating a valuable community.
Staying Aware of Property Taxes
Once you have a strong understanding of property taxes, from how they are calculated to their purpose, the best way to ensure that you are paying the right amount is by staying educated. This means staying up to date with your municipalities changing rates and spending from year to year, finding out about any deductions you might be eligible for and having an active role in the assessment of your property.
Working with RE/MAX means having all the home and property owner resources at your fingertips. From buying and selling tips to housing market outlooks, you can make the most of your real estate decisions with RE/MAX.