When you are dealing with real estate − as a broker, leasing agent, commercial tenant, property manager or owner - property taxes represent the biggest operating cost. Property tax rates are climbing across the country and increases for 2022 are anticipated.
Changing the political and economical environment might be out of your reach but making sure you pay your fair share of property tax isn’t. Reviewing and challenging an assessment, if appropriate, can reduce your liability and increase your competitiveness.
A successful appeal can decrease the overall costs of your business as a commercial tenant and add stability over the assessment cycle. As a property owner or manager, lowering property taxes will decrease your operating costs, enabling you to offer lower gross rent per square foot, making you more competitive within the market.
What’s the process?
Assessment cycles vary widely from province to province and municipality to municipality, from annual cycles up to four-year cycles. Property assessments can be based on:
- Direct Comparison Approach – analysing sales of similar properties
- Income Approach – estimating the market value of a property based on the income generating potential
- Cost Approach – utilizing a depreciated replacement building value in addition to land value for the subject
The assessments on which property taxes are based can falter for several reasons. Municipalities conduct mass appraisals of comparable properties, which may not consider the unique situation your property(s) could face.
The other major issue is timing; the city will be looking at past records, which could vary substantially from the current market environment. For example, Ontario has maintained a historic cycle due to the pandemic and is still based on the valuation date of January 2016.
Read the municipal request for information
This is where you can take a first step: municipalities send out request for information ahead of their assessment cycle. The data requested includes rental data, verification on property sizes, as well as income and expense information.
Make sure to respond to the request: notice and compare your assessment to last year’s value, and to any market valuations you might have of neighbouring properties. Owners can lose the right to appeal their property assessment if the information request is not returned. Ensure you are vigilant about the deadlines involved – certain provinces can charge you a fee for not responding.
If you believe the assessment is unreasonable, you can file a formal complaint on the property, submitting evidence to a tribunal board demonstrating why assessment is incorrect. Working with an experienced team like MNP will facilitate the process: the team will audit if the value placed by the municipal assessment team is at market by accessing records and market data, and if you are being treated equitably, relative to competing properties.
Your advisors will inform you of all aspects, including if the valuation could be higher than the municipal assessment, and the risks and opportunities to pursue there, as well.
For tenants, take it on yourself and jump in if you disagree with the municipal assessment as it is not a given the property owner will. Your advisor will clarify how the assessment was derived and the corresponding taxes attached to the assessment so you can plan your costs more accurately over the year.
It also is important to note, not-for-profit and charitable organizations are tax exempt in most provinces and territories.
Receiving a fair and equitable assessment of your assets is key to minimizing your tax liability, increasing your liquidity and competitiveness in challenging real estate markets.
To learn more, contact your local MNP Property Tax Advisor.