Ontario will again rely on 2016 market values to apportion property tax in 2024. Earlier this month, provincial Finance Minister Peter Bethlenfalvy filed a regulation to postpone property reassessment for another year, thus stretching the assessment cycle to double its originally intended time span.
In making the decision, the Ontario government cites concerns about inflation, financial stress related to mortgage renewals and the need for householders to have budgetary predictability. Critics counter that the delay is indiscriminately driving up property tax rates as municipalities grapple with their own cost pressures, and is stalling needed tax shifts within the commercial property tax class to reflect the change in economic circumstances from eight years ago.
“A reassessment allows for rebalancing and readjusting of value as it relates to each property tax class. With that, comes a higher revenue base for the municipality, which allows it to adjust the tax treatment relative to the property class,” observes David Gibson, managing director of the property tax and assessment advisory firm, Yeoman & Company. “Without that growth in assessment and rebalancing of the allocation, municipalities are just increasing taxes across the board.”
Accurate assessments are particularly key to apportioning the tax burden among commercial ratepayers because of the range of asset types — office, retail, hotel, warehouse/logistics — lumped together with a single tax rate. In general, it’s presumed that office properties would be carrying a lesser share of the overall commercial allocation and warehouse/logistics properties would shoulder more if assessed values were brought up to date.
“This year there were a number of municipalities with pretty significant tax rate increases. It certainly would have been a good time to have a reassessment in place so the increases were distributed fairly and equitably,” says Jeff Arnott, a vice president with Altus Group’s property tax division. “When reassessment is delayed, the anomalies in the system — some people are paying more than they should; some people are paying less than they should — just get compounded. The scale of this problem is getting larger by the year. ”
Based on the governing legislation in Ontario’s Assessment Act, updated assessments tied to January 2023 property values are now theoretically expected to be in place for the 2025 tax year. However, Bethlenfalvy makes no commitment to any firm date in a recent letter to the Association of Municipalities of Ontario (AMO).
“Our government will conduct a review of the property tax assessment and taxation system that will focus on fairness, affordability and business competitiveness,” he advises. “In order to maintain stability for taxpayers, we will continue to defer property reassessment until our work is complete.”
AMO, an umbrella policy support and advocacy group for Ontario’s local governments, has been actively urging the provincial government to proceed with reassessment and is now reiterating that it will continue to do so.
“AMO is concerned that further delays will compound uncertainty for residents and businesses. Outdated assessments are inaccurate, increase volatility and are not transparent,” a statement on the association’s website asserts. “Further deferring property reassessment during the review means municipalities could be waiting awhile before a reassessment is conducted.”
“Continuing to push out the assessment period creates continued uncertainty for our industry as we try to forecast where taxes are going to be and provide good information for our tenants,” concurs Dean Karakasis, executive director of the Building Owners and Managers Association (BOMA) of Ottawa. “In today’s climate of overall economic slowdown, increasing interest rates and shifting tenant needs, having more unknowns is not helpful to creating a stable market for our tenants.”
Delayed reassessment undermines transparency and exacerbates tax swings
Property values are updated on an annual or biennial schedule in most other Canadian provinces except Quebec, where reassessment occurs at three-year intervals. (Manitoba added an extra year to its assessment cycle during the COVID-19 pandemic, but is now back on schedule.) Prior to Ontario’s hiatus — which was invoked in the early days of the pandemic and subsequently extended — the province had settled into a four-year assessment cycle with a mechanism to phase in assessment-related tax increases in increments of 25 per cent over those four years.
Gibson argues that the phase-in already reinforces the predictability and transparency that the provincial government claims to be seeking. Both ratepayers and municipalities can plot how assessed values will rise and how the corresponding tax rate should drop with each year’s new quotient of assessment growth. That should also make it straightforward for property owners to distinguish between assessment-related and spending-related tax increases.
“Provided there’s a reassessment for the 2025 tax year, property owners won’t see the full implications of upward revisions until 2028,” Gibson notes. “In the meantime, the hard-hit retail, the hard-hit office and other markets that are struggling in other parts of Ontario may get a benefit from the reset that they’re not getting today.”
In contrast, the connection between 2016 values and the actual market becomes murkier with every additional year before a reassessment and the potential grows for dramatic tax shifts once updates finally do occur. Notably, in the late 1990s when the Ontario government first adopted a regular assessment cycle, properties in many municipalities had not been reassessed in multiple decades. That necessitated an elaborate apparatus of caps and clawbacks to ease the severe tax swings and more gradually move to an equitable alignment.
“It was extremely complicated and cumbersome, and it was outrageously confusing for the business community,” Arnott recounts. “By 2020, it had seemed, with the long troubled history of getting there, that Ontario assessment had reached a point where it was stabilized. Now it feels like we’re going backwards.”
Tax shifts are typically more moderate when assessments are updated more frequently. However, even the considerable jump in home values that has occurred since 2016 is expected to cause little fallout for residential ratepayers because it is a sector-wide phenomenon for a single asset type.
“When the market value of the whole residential sector doubles, the tax rate goes down by half, and the majority of residential taxpayers don’t see a huge impact because they follow the average of the residential change,” Arnott explains. “We know that the thought of a reassessment, or just mentioning that a reassessment might happen, scares politicians about residential taxes even though, historically, it doesn’t have the impact that everybody thinks it’s going to. But, if assessments are updated on a very consistent basis, there will be no surprises. Nobody’s assessment will shoot up dramatically; the taxes won’t shift dramatically.”
Barbara Carss is editor-in-chief of Canadian Property Management.
