How Does Property Tax Work?
The amount owners owe in property taxes is determined by multiplying the property tax rate by the current market value of the lands in question. Most taxing authorities will recalculate the tax rate annually. Almost all property taxes are levied on real property, which is legally defined and classified by the state apparatus. Real property includes the land, structures, or other fixed buildings.
How is your property tax calculated?
Property taxes are calculated using the assessed value of your property and multiplying it by the combined municipal and education tax rates for your class of property.
- road maintenance
- waste disposal
- parks and leisure facilities
Education tax rates, set by the Ontario Government, may also be applied using these assessed values.
7 Things you should Understand about Property Tax in Ontario
1. Property owners pay property tax calculated by the local government where the property is located.
Property tax is a tax paid on property owned by an individual or other legal entity, such as a corporation. Most commonly, property tax is a real estate ad-valorem tax,which can be considered a regressive tax. It is calculated by a local government where the property is located and paid by the owner of the property. The tax is usually based on the value of the owned property, including land.
2. Property tax is based on the value of the property, which can be real estate or—in many jurisdictions—also tangible personal property.
Your property tax is proportional to the value of your property
In this example, a small municipality with three properties worth $125,000, $175,000 and $200,000 has services costs of $2,000 that are paid by property owners through property taxes.
Each property owner in the municipality pays a proportion of that $2,000 based on their property’s assessed value. This is calculated by first adding up the value of all three properties, for a total of $500,000. Since the cost of services is $2,000, the tax rate is 2,000/500,000 = 0.004, or 0.4%. Therefore:
- The owner of the $125,000 property pays $500.
- The owner of the $175,000 property pays $700.
- The owner of the $125,000 property pays $500.
- The total of the property tax paid by the three property owners is $2,000.
3. Improvements in water and sewer use the assessed taxes.
The local governing body will use the assessed taxes to fund water and sewer improvements, and provide law enforcement, fire protection, education, road and highway construction, libraries, and other services that benefit the community.
4. Property tax rates and the types of properties taxed vary by jurisdiction. When purchasing a property, it is essential to scrutinize the applicable tax laws.
Different levels of government with different responsibilities
The Provincial Government, MPAC and municipalities all have different areas of responsibility in Ontario’s property assessment and taxation system. Each plays an important role.
Ontario Provincial Government
- passes legislation
- sets assessment policies
- determines education tax rates
- Determines current value assessments and classifications for all properties in Ontario.
Municipality/local taxing authority
- Determines their revenue requirements.
- Sets municipal tax rates and policies.
- Collects property taxes to pay for your municipal services.
5. Ontario has an organization, MPAC (Municipal Property Assessment Corporation), a non-profit corporation whose members are made up of Ontario municipalities that conduct assessments every four years.
Property owners are subject to the rates determined by the municipal government. A municipality will hire a tax assessor who assesses the local property. In some areas, the tax assessor may be an elected official. The assessor will assign property taxes to owners based on current fair market value. This value becomes the assessed value for the home.
The payment schedule of property taxes varies by locality. In almost all local property tax codes, there are mechanisms by which the owner can discuss their tax rate with the assessor or formally contest the rate. When property taxes are left unpaid, the taxing authority may assign a lien against the property. Buyers should always complete a full review of outstanding liens before purchasing any property.
6. Not all property taxes are real estate taxes.Real estate taxes are taxes on real property only; property taxes can include both real property and tangible personal property.
People often use the terms property tax and real estate tax interchangeably. And it’s partially true: Real estate tax is a property tax. However, that’s not true the other way around. Not all property taxes are real estate taxes.In addition to real estate, many jurisdictions also levy property taxes against tangible personal property.
7. If you have a mortgage, your property tax may be rolled into your monthly mortgage payment. Otherwise, you pay the tax office directly.
In general, there are two ways to pay your property tax bill: as part of your monthly mortgage payment or directly to your local tax office.
If you have a mortgage, your property taxes may be rolled into your monthly mortgage payment. If so, your lender divides your estimated tax bill by 12 and includes that amount in your monthly payment, along with the principal, interest, and private mortgage insurance—four costs collectively known as “PITI” (principal, interest, taxes, and insurance). For a $2,000 annual property tax bill, for example, you would pay about $167 a month. Your lender estimates your tax bill, so you’ll get a refund if you paid too much, or you might have to make an extra payment if the amount you paid comes up short.
You can find out the total amount of property tax you paid by looking at box 10 (“Other”) of IRS Form 1098. Your lender sends this to you by Jan. 31 if you paid $600 or more in mortgage interest the previous tax year.3 If you didn’t receive a 1098—and you should have—call your lender or find the information on your lender’s website. You may be able to lower your tax amount by appealing your assessment (if you think it’s too high) or finding out if you’re eligible for any exemptions.
Pay Your Local Tax Office
If you don’t pay your property tax as part of a monthly mortgage payment, you’ll pay the tax office directly. You should receive a bill in the mail that includes payment directions. Depending on where you live, you may have several payment options:
- By check or money order sent through the mail
- Online using a credit or debit card
- Online using an electronic check payment (eCheck)
- By telephone using a credit or debit card
In addition to the different payment options, you may get to choose if you want to pay the bill all at once or split it into monthly, quarterly, or biannual payments. Pay attention to any prepayment discounts offered—some municipalities provide a discount if you pay early.
Hope you find this piece of information useful for your further decision making. Pay your taxes on time to avoid any charges for late payment which can cause you unnecessary burden. Let us know in the comment section below.
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