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Section 2 - Pre-1998 Property Assessment and Taxation

The provincial government introduced reforms in 1998 that not only revised how property assessments were conducted and how property taxes were calculated, but also affected those services for which municipalities were responsible.

2.1 Assessment System Problems

In many areas of the province, the assessment base had become outdated resulting in confusion and unfairness for some taxpayers. Although the basis for property assessment was market value, it lacked consistency throughout Ontario. Valuation dates ranged from the 1940's to the 1990's across the province. The lack of consistency in valuation dates resulted in similar properties in the same municipality paying different property taxes. It was difficult for property owners to understand their assessments and to determine if their assessed values were appropriate. Property owners are generally aware of the current market value of their properties, but with outdated assessment bases where assessments bore no relation to actual market values, it was difficult to know if an assessment was correct.

Properties across the province were classified as having either residential or commercial and business assessment (i.e. only two broad classes of property). Property taxation for the two broad classes was based on mill rates (which is a rate per $1,000 of assessment). Legislation required that the residential mill rate be equal to 85% of the commercial mill rate. In addition, businesses occupying commercial property were subject to a Business Occupancy Tax (BOT) using business assessment and a commercial mill rate. Non-residential property taxes (i.e., taxes on businesses) therefore consisted of a realty property tax portion and the BOT.

2.2 Proposed Solutions

The provincially appointed Who Does What panel¹ recommended the reform of the assessment and property taxation system. Its recommendations included the following:

• Bring property values up to date across the province and keep them up to date by implementing an annual reassessment system by 2004 that uses a rolling three-year average to smooth out sharp fluctuations in property assessments.
• Base assessment on current values determined on the basis of current sales.
• Replace mill rates with “tax rates” which would be expressed as a percentage of the assessed value of property.
• Establish several property classes (i.e. residential, multi-residential, commercial, industrial).
• Allow municipalities to set different tax rates for different types of property and set parameters within which municipalities can set different tax rates for different property classes.
• Eliminate the BOT but allow for the recovery of the equivalent revenues from commercial and industrial classes.
• Allow for the phase-in of assessment-related tax changes.
• Offer a tax deferral to low income seniors impacted by property tax reform.

¹ The Who Does What panel was responsible for reviewing and recommending improvements to the provincial/municipal financial relationship. The panel reported to the Minister of Municipal Affairs and Housing in December 1996.

2.3 Local Services Realignment (LSR)

As the province implemented the recommendations of the Who Does What panel, which changed the provincial/municipal financial relationship, it changed the distribution of the total property tax burden. Services previously delivered or funded by the provincial government were transferred to municipalities as part of the initiative known as “Local Services Realignment” (LSR). In order to offset the additional costs related to social assistance, public health, ambulance services, and

Total Property Tax Burden - Pre and Post LSR

social housing that were transferred to municipalities, the province removed approximately 50% of the education taxes from the residential property tax burden. This allowed municipalities to increase the municipal portion of the property tax bill in order to fund these additional services without adversely impacting property taxpayers. The above chart illustrates the distribution of the total property tax burden for the 1997, 1998 and 2011 tax years at the Region of Peel.

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Revised: Friday July 29 2011

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