Author: Financial Awakening Blog
If you still haven’t read Step 1 – Plan ahead. Imagine where you are when you retire, I highly recommend you to read it first.
If you do not know what is MPAC, Municipal Property Assessment Corporation, then you probably are not a landlord. MPAC is the corporation that do the assessment of your property. They are supposed to mail to you a letter every year telling you the assessment value of your property. In the letter, they will tell you that the change (almost always increse) in assessment value do not necessary increase your property tax because the property tax is calculator based on the mill rate. Don’t be fooled. Your property tax will increase!
In 2010, Auditor General published a report on MPAC’s management, 2010 Annual Report of the Office of the Auditor General of Ontario Section 3.08. Feel free to read it if you are interested in knowing more. However, it provide you with one clear message. MPAC is incompetent.
Here are some points to note from the report.
- the assessments are inaccurate
- extremely long delay in reassessments
- highly inefficient in budgeting
- spent unusually amount of money in dinning and winning.
MPAC should be doing the assessment every year, but instead, they do it every 4 years. The last assessment was in 2008. The next one will be this year, 2012 for taxation year 2013 – 2016. They will not increase the assessed value in one shot. Instead, they will phase in over 4 years, a quarter of the installment every year. Decrease are not subject to phase in and will be applied immediately. However, it rarely happen with MPAC. If you are not happy with the assessment value, you should try to fight it right away. If you wait, MPAC may say that you accept the new assessment in the first year by not complaining right away.
Here is a table of the assessment cycle.
|Taxation Year||Valuation Date|
|1998, 1999, 2000||June 30, 1996|
|2001, 2002||June 30, 1999|
|2003||June 30, 2001|
|2004, 2005||June 30, 2003|
|2006, 2007, 2008||January 1, 2005|
|2009, 2010, 2011, 2012||January 1, 2008|
|2013, 2014, 2015, 2016||January 1, 2012|
Here is an example from City of Toronto site.
|EXAMPLE of a Four Year Market Value Assessment Increase:
A residential property with a 2008 CVA of $400,000 (based on a January 1, 2005 valuation date) was reassessed for 2009 at $480,000 to reflect a January 1, 2008 valuation date. The overall increase in CVA is $80,000, or 20% over the past three years since the last reassessment. Under the new phase-in program, the assessed value used for taxation purposes is increased each year by one-fourth of the total CVA change, or $20,000 per year, until the final “destination assessment” of $480,000 is attained in year four. The table below illustrates how assessment increases will be phased-in over the four year period 2009-2012 for this example.
Sample Calculation of Assessment Phase-in
CVA based on January 1, 2008 valuation date: $480,000 CVA based on January 1, 2005 valuation date: $400,000
Change in CVA (total amount to be phased-in): $80,000
Annual amount to be phased-in: $80,000 / 4 years = $20,000 per year
|Valuation Date||January 1, 2005||January 1, 2008||January 1, 2008||January 1, 2008||January 1, 2008|
|CVA figure used for taxation||$400,000||$420,000||$440,000||$460,000||$480,000*|
You can find more information about this in City of Toronto Property Tax.
When you received your assessment and see the value is much higher than your purchase price or what you think your property is worth. Don’t be happy. And don’t think that you are making money because of the appreciation. The assessment value from MPAC assessment is just an imaginary number. It is not a good estimate of how much your property worth. The only purpose of this number is to calculate your property tax.
One point to note is that this is not the number insurance company use to define the replacement cost.
Here is the formula to calculate MPAC’s Payments for services from the city.
(A+B)/2 x C
Where A is the total assessment on all property in the municipality / total assessment of all property in Ontario
B is total number of properties set out in assessment rolls returned in the municipality / (total number of properties set out in all assessment rolls returned to all municipalities in Ontario + those without territory)
C is the amount that the Corporation considers necessary to pay for its operations during the taxation year
You can read more about the Municipal Property Assessment Corporation Act, 1997 if interested. The above is from Section 12.
I wonder how they calculate the amount that the corporation considers necessary to pay for its operations. It is not difficult to imagine how much the executive members got paid if you look at the executive salary from LCBO or ORNGE, etc.
If you believe your assessment is too high, you can send in request for consideration form to MPAC. However, do not have your hope high, they will not take you seriously.
Read MPAC – The Wolf in Red Riding Hood in the next article.
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