How current are your city’s property assessments?

Determining the fair distribution of property taxes

When property assessments reflect the actual current market value of all properties in a jurisdiction, then it is generally accepted that the property taxes are fairly distributed among property owners, subject only to variances in the tax ratios determined by local taxing authorities.

There are two key variables that determine the fair distribution of property taxes: the tax ratio and how current the assessments of properties are kept. In Canada, the frequency of assessment updates and currency of assessed values is governed by the Provincial Governments.

To best reflect the changes inherent in a dynamic economy and to maximize fairness and ease of understanding, assessments should be based on the current market value of property. Values in one area may increase, whereas those in another may decrease or stabilize. Property taxes then shift to areas with increasing wealth as measured by property value. Only a system requiring current market value acknowledges these changes in local economies and the distribution of property-related wealth.”

Source: International Association of Assessing Officers (IAAO) Standard on Property Tax Policy – 2020

How current are property assessments in Canada?

The graphic below illustrates both the frequency of assessment updates and the currency of assessed values for each of the 11 major urban centres covered in this report.

The blue bar / valuation date lag shows how current the assessments are in each city. The currency of the assessment is measured by the time lag from the base valuation date of the assessments to January 1 of the first taxation year for which the assessments apply. Assessments are the most current in Vancouver, Calgary and Edmonton where the assessment valuation date is only six months prior to the first taxation year. Assessments are the least current in Toronto, Ottawa, Saskatoon and Regina where the assessment valuation date precedes the first taxation year by two years.

The orange bar / length of the assessment cycle shows the frequency of assessment updates measured by the number of years between assessment updates. Assessment updates are the most frequent in Vancouver, Calgary, Edmonton and Halifax where assessments are updated annually. Assessment updates are the least frequent in Toronto, Ottawa, Saskatoon and Regina where assessments are only updated every four years.

The combined blue and orange bars indicate how many years outdated the market value assessment is by the end of an assessment cycle. As market values change over time, at differing rates, outdated assessments create inequities, or unfairness, in how property taxes are distributed among classes of properties and between property owners within the same tax class.

The grey bar / reassessment delays represent the number of years a scheduled update of assessments has been postponed. Winnipeg was scheduled to update assessments to reflect market values as at April 1st 2020 for the 2022 taxation year. That reassessment has been postponed by one year. Toronto and Ottawa were scheduled to update assessments to reflect market values as at January 1st 2019 for the 2021 taxation year. The Province of Ontario has delayed that reassessment for 2 consecutive years and, at the time of writing this report, has yet to confirm whether an assessment update will occur for the 2023 taxation year.

Combining the lag in valuation dates and the length of the assessment cycle shows that Vancouver, Calgary and Edmonton are the Canadian poster children, having assessments that are never more than a year and a half out of date. These factors combined foster a fair system for the distribution of taxes most in line with the IAAO standard.

At the other end of the spectrum Saskatoon, Regina, Toronto and Ottawa have the least current systems of assessment, where assessed values are 6 years behind by the end of an assessment cycle. With the Provincial delay in assessment updates, Toronto and Ottawa’s assessments would now be 8 years outdated, under current legislation, by the end of 2022.

What are the consequences of outdated property assessments?

When assessments are allowed to become more outdated, inequities, or unfairness, in the distribution of taxes creeps into the system. The result is typically large shifts in relative assessments, between property tax classes and amongst properties within a tax class, when the next reassessment does occur. T

his shifting of tax burdens normally leads to outcries from those groups of taxpayers who had previously been under taxed and are now facing the largest tax increases. The political reaction to this is normally the implementation of tools to mitigate the tax shifts such as the phase-in of assessment changes, capping of tax increases, or changing tax ratios.

All these measures only entrench the inequities of assessment, caused by outdated assessments, into inequities of taxation. Those properties that weren’t paying their fair share continue to be undertaxed while those properties that were overtaxed continue to be overtaxed.

The Province of Ontario went through a period from 1969 to 1998 where assessments were “frozen”, no reassessments occurred. At the time the Residential Tax Rate was 85% of the Commercial Tax Rate in both Toronto and Ottawa, representing a Tax Ratio of 1.18.

When the Province moved to market value-based assessments in 1998 the shifting in tax burdens, that would have resulted from correcting the inequities in assessment which developed over the preceding 29 years, forced the Province to introduce numerous tax classes, sub-classes and optional classes on top of capping tax increases and clawing back tax decreases, introducing graduated tax rates and later the phase-in of assessment increases.

The hangover from this unprecedented delay in updating assessments remains in Toronto and Ottawa to this date, having the greatest inequities in taxation and the least transparent tax system of all the cities covered in this survey.

Consequently, their tax ratios have moved from 1.18 to 3.44 and 2.37 respectively. And it could only get worse for these cities with the pending introduction of a Small Business Tax Class and/or if further reassessment delays occur.