Wednesday 23 September 2015

Understanding municipal property taxes

Everyone who owns a home knows the joy of receiving property tax bills.  And most folks look at the property values going up and assume that means taxes are going up, but that is not a completely accurate understanding of how property taxes are determined.

In reality, the property value is only part of the equation.  Before your tax bill is calculated each year, the city has to sort out its annual budget. Once that budget is set, the total gets divided among all property owners proportional to property value.  As a simple example, if the budget was $100 and there were 100 properties of equal value, every property would pay $1. 

Of course, not all properties are equal in value, so a higher valued property pays more tax than a lower valued one.  And to further complicate things, you get into matters of area rating and different tax rates by property types - commercial, residential, industrial, etc - but the basic concept is still a division of city budget according to land value.

So, because your taxes are determined by splitting the budget among the tax base, even if all property values in the city were frozen your taxes would still go up if the city budget went up.

Conversely, even if the budget was frozen, your taxes could still change if your property value went up by more or less than everyone else's, or if the mix between residential and other property types changed. Commercial property taxes are higher than residential, for example, making commercial development important to lowering residential tax rates in the long term.

Unfortunately, it is rare that either the budget or the values remain fixed, so what is causing increase tax bills is a bit of a moving target, but good fiscal management at city hall is going to be a good starting place when it comes to keeping our tax bills down.

For those interested in delving into property taxation in more details, the City of Hamilton website has plenty more [information on understanding municipal property taxes].

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