The current pandemic crisis is having a devastating financial impact on many business sectors. Those in the real estate industry are naturally worried about rental income, mortgage payments, and, of course, payment of property taxes. Regarding this latter concern, some property owners have asked: "Should I be appealing my property assessment in 2020 to secure property tax relief due to COVID-19?" Property Taxation and Assessment Lawyer Melissa Muskat addresses this topic and related questions below.
Understanding how your 2020 tax year property assessment value is determined:
Property taxes are based on property assessment values (current values) and the property assessment valuation process is retrospective. It values properties based on a market valuation date in the past. For the tax years 2017 – 2020, the valuation date is January 1, 2016. (*Due to the Province's recent postponement of the next Provincial re-assessment, the January 1, 2016 current value assessment will also apply in 2021.)
For the 2020 tax year, the legal basis to challenge your assessment is based on the answer to the following question: "What would my property have sold for, unencumbered, at arms' length by a willing seller to a willing buyer, as of January 1, 2016?"
To clarify: When appealing for the 2020 tax year, you essentially look at the property as it physically existed in December of 2019 and determine what it would have sold for on January 1, 2016.
Appealing your assessment for the 2020 taxation year based on COVID-19 will NOT get you any tax relief based on a reduction in an assessment value for the following two reasons:
- The market value date is as of January 1, 2016, not now; and
- EVEN If there is likely to be a loss of market value in 2020 (which I will discuss below), it will NOT be relevant to the physical state of the property in December 2019, which is when you consider the physical state of the property for the 2020 taxation year.
But what if my property loses value because of COVID-19?
Firstly, properties can lose value for many reasons – contamination, recession, changes in industry, etc. Property owners have the right to appeal their property assessment ANNUALLY if they feel that the current value assessment for the year is too high. One generally would not appeal a reasonable assessment because of what might happen down the road with the property's market value. You don't know now that your property has lost value, so it is premature to file an assessment appeal on that basis. You can revisit this question annually and appeal at the appropriate time.
Secondly, you can't simply challenge an assessment and say that it's "too high because of COVID-19". You have to have actual evidence of what the current value is/should be based on sales data, income data, or other evidence of value. It is likely way too early to determine what, if any, market value loss there is to the REAL PROPERTY as a result of COVID-19. In the same vein, just because people may experience business shutdowns or loss of rental income, that does not automatically mean that there will be a loss of market value to a property. What might impact market value are issues such as chronic vacancy or a property becoming obsolete or unmarketable.
Therefore, it is premature to be challenging an assessment in 2020 based on COVID-19 alone. One should wait to see what, if any, impact COVID-19 has on a property's current value. If there is evidence of "physical" impact to the property affecting what the property would have sold for in January of 2016, then you would appeal the assessment in 2021.
Lower Assessment Values do not always result in Lower Taxes
Municipalities set tax rates based on the cumulative assessment value base for the various classes of properties in the municipality. The assessments of all properties within a property class are totaled each year and the municipality sets tax rates to generate the tax dollars it needs to provide services to the municipality. The tax rate-setting process is intended to be "revenue neutral," generating the same tax revenue as in the previous year (subject to council's vote to increase property taxes). As most people have noticed, as assessment values increase as a whole, tax rates decrease.
So, let's say all properties have lost value due to COVID-19 that would justify a 50% reduction in the current value assessments the next time MPAC re-assesses all properties in 2022. Will a municipality collect 50% of its taxes? No, the municipality will double the tax rate in order to collect the same amount of revenue as it did before the current value assessment decreases.
Should I still file an appeal of my assessment in 2020 and is there still time to do so?
I strongly support appealing assessments all the time – provided the value is not too low – but NOT because of COVID-19. At this time, it is premature to say what, if any, impact COVID-19 will have on real estate values that will be relevant to the determination of a property's current value assessment. But, many other issues can be considered in challenging a property's assessment.
If you have already appealed your property's current value assessment for any of the 2017 – 2019 tax years and those appeals are still pending, then you will already have a deemed appeal created for 2020, so no further steps need to be taken.
If you do not have appeals pending, then there are two options:
- As the owner, you can file a Request for Reconsideration ("RFR") with MPAC. An RFR is a mandatory first step for challenging the assessments of properties with a Residential or Farm classification. It is optional for all other types of properties. The RFR filing deadline date is usually March 31 of the applicable taxation year. However, given the emergency declared by the Province of Ontario, pursuant to the Emergency Management and Civil Protection Act and regulations made thereunder, the RFR deadline for the 2020 taxation year has been extended to 16 days after the emergency is lifted. The RFR process is less formal than the appeal process. It involves MPAC simply reconsidering your assessment based on the best evidence you can provide to establish a lower value for your property. MPAC's RFR decisions can be appealed to the Assessment Review Board.
- Owners and tenants (provided notice to the owner is given) can file an appeal to the Assessment Review Board. The assessment appeal deadline date is usually March 31 of the applicable taxation year. However, given the emergency declared by the Province of Ontario and the legislation noted above, the deadline date for filing assessment appeals has been extended to 15 days after the emergency is lifted. Effective July 1, 2020, the appeal filing fee for residential properties is increasing from $125.00 to $132.50 per appeal. The non-residential filing fee is increasing from $300.00 to $318.00 per appeal, regardless of taxation year. A $10 discount applies to electronic filings.
Is there any property tax relief available due to COVID-19?
YES! Many municipalities announced extensions to property tax payment deadline dates and are waiving the penalties and interest for late payments. Reference should be made to your local municipality's website for confirmation of property tax relief measures.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.