Worried about a tax increase?
Posted on Jan 6, 2018 in Mortgage Market Updates and News
Did your assessed value increase this year? If you've been sitting at home worrying about a property tax increase because your BC Assessment increased, this is the blog post you need to read.
There are two pieces of the puzzle when it comes to your property taxes being calculated. There’s your assessment, and the City’s tax rate. Typically when people’s assessments see large increases, they start to panic that their taxes are going to skyrocket. But that’s just not how property taxation works.
Municipalities run on largely the same budget year over year. Most common are increases in the 2-5% range to cover minor program changes and cost of living increases. So if everybody’s tax assessments increase by 20%, the City doesn’t just collect 20% more tax that year to do what they want with.. Sure, that would be nice in those increase years, but how would they operate in years when assessments decreased? It’s just not a system that would work in maintaining a stable government. Instead of flowing with the increases and decreases, municipalities set their tax rate each year at what it needs to be to collect the correct amount of taxes.
Here’s an example.
If a municipality has properties in their boundaries that value a total of 300 million dollars, and their annual operating budget is 30 million, they set their tax rate to 10% so that they can collect the 30 million they need to operate.
If the next year, the average property assessment increases by 15%, then that municipality now has $345,000,000 in assessments. If they left their tax rate the same, they’d collect $34,500,000 giving them an extra 4.5 million dollars to do what they want with (wouldn’t that be nice as a municipality).
But that’s not how it works, and that would leave all their residents paying large increases in their taxes. So what happens? They adjust their tax rate down to the amount it needs to be to collect that 30 million that they need to run. In this case, their tax rate would drop from 10% down to about 8.7% and everybody who had a 15% assessment increase would pay the exact same taxes.
Those who had increase larger than 15% would pay a bit more, and those with increases less than 15% would pay a bit less than the previous year.
Property assessment and taxes are all about average change. So what’s important is not how much your assessment has gone up, but what percentage your assessment has gone up relative to the average home in your area.
In Port Alberni this year BC Assessment just released that the average home went up about 21% (City of Port Alberni). So the first step to figuring out if you should be worried about your taxes is looking at if your house went up more or less than that. If your house went up less or about the same, you’re in good shape. It’s when you have a larger increase than average that you'll see an increase in your taxes.
The last piece of this I want to touch on is municipal budget increases. The example above is simplified just to get the understanding of how the system works across. But in reality, municipalities wouldn’t operate on 30 million year over year. They’d increase their budgets each year to account for operating increases, new programs, new capital projects like pools, beautifying projects, etc. The City of Port Alberni has committed to 3% increases for the next 4 years to focus more strongly on infrastructure renewal, roads, sewers, buildings, etc. This is subject to change each year when the City reviews their budget.
Budget time begins in January each year and includes budget deliberation meetings, public input meetings, e-town hall meetings, etc. All budget meetings are open to the public to attend, and are streamed online and stored on the City's website. If you’re wanting to have a say in the spending and direction of our community, keep an eye on portalberni.ca/budget for meeting schedules and information.
If you think your assessed value is higher than the value of your house and would like a Realtor to give you an idea of what your house is worth please give me a call or email and I'd be happy to check it out for you. You have until the end of January to appeal your assessed value.
Thanks for reading.
Mortgage Broker and Realtor
TMG The Mortgage Group Canada Inc
RE/MAX Mid-Island Realty