An analysis of over 3,400 residential sales between July 1, 2023, and June 30, 2024, in Vaughan, Ont., reveals the outdated property assessment values, resulting from the delayed provincial reassessment, is resulting in inequitable tax distributions for residential properties.

Under Ontario’s legislation, the province operates on a four-year reassessment cycle, meaning property assessments are be updated every four years to reflect contemporary market values.

However, due to multiple delays imposed by the provincial government, the reference date for current property assessments remains Jan. 1, 2016. Although the Municipal Property Assessment Corporation (MPAC) still updates assessments for physical or legal changes to properties, these updates still reflect the Jan. 1, 2016, valuation date.

Consequently, the assessment for each property reflects its current condition, but is based on the market value at the beginning of 2016.

The problem with lengthy reassessment cycles

Property tax rates are based on two factors: the total value of taxable properties in a jurisdiction; and the total amount of revenue that needs to be collected from property taxes.

Tax Supported Budget Requirement ÷ Total Value of Taxable Properties = Property Tax Rate

In a scenario where property values in a jurisdiction are stable, a lengthy reassessment cycle has minimal impact on the overall tax rate, assuming government budgets are also unchanging. However, even in such cases, there are redistributions that occur within a tax class, as the market value of properties changes relative to others.

It is unreasonable to assume every asset within a tax class would experience the same change in value over the same period. Differences in geography, size, age, and/or supply and demand trends naturally create "markets within markets."

By extension, the property tax liability for an individual property is a function of the property tax rate and the asset’s taxable assessment value. 

Taxable Assessment Value × Property Tax Rate = Property Tax Liability

The share of the property tax burden for an individual property changes depending on its market value relative to other properties within the same tax class.

For example, if properties in one specific neighbourhood experience a larger increase in market value than other areas, they will take on a larger share of the tax burden when a reassessment occurs. In this way, the assessment value operates as the distribution mechanism for property taxes. As such, shifts in market value relative to other properties in the same tax class determine changes in tax liability.

This model of understanding and communicating property tax shifts is used by assessing authorities across Canada, including MPAC in Ontario.

https://www.mpac.ca/en/UnderstandingYourAssessment/

As the above graphic details, a property (or group of properties) which shifts greater than the average for the tax class will see an increase to the tax liability. On the contrary, assets that change less than the average will see a tax decrease when a reassessment occurs.

In Ontario, where the valuation date is now nine years old (by far the most outdated in Canada), the shift in tax liability due to changes in market value is not occurring. When the tax system is based on outdated estimates of market value, tax liability becomes increasingly inequitable.

The issue is compounded by the magnitude of the change in market value over the reassessment period.

Findings

A dataset of over 3,400 residential sales in Vaughan were analyzed, these transactions representing open-market sales occurring between July 1, 2023, and June 30, 2024. This period brackets what would have been the most recent reassessment reference date (Jan. 1, 2024).

The results showed clear differences between the 2016 Current Value Assessment (CVA) as reported by MPAC, and the actual purchase prices of the residential properties. Overall, the average increase variance the purchase prices and the current assessed values is +82 per cent. This is not unexpected given the changes in the market value for residential properties in Ontario between 2016 and 2024.

The sales were then categorized by submarket, highlighting differences in the average change between residential property types and the overall market.

To reiterate, sectors with shifts above the overall average would suggest that their current tax liability is lower than it would be following a reassessment, while sectors below the overall average would currently have a tax liability which is higher than the sales data supports.

Additionally, as shown in the chart below, the research suggests that the average change in value varies based on the purchase price of the property, with those assets in the upper and lower ranges exhibiting below-average shifts. This suggests a reassessment would yield lower tax liability for assets of a similar value.

Finally, the data was segmented by an overlay of both building type and purchase price.

As the chart below highlights, condo apartments with purchase prices over $1.58 million saw the largest increase relative to the current assessed values, while stacked townhomes under $1.13 million experienced the smallest increase. To emphasize, any market segment with value changes above the overall market shift would likely experience tax increases when a reassessment occurs and any category with changes below the overall residential average would likely see decreases.

Comparative Example

The following chart details two specific sales within the dataset. 

These two transactions are located on the same street and have similar sale dates and prices.

Using the purchase prices as an indication of future assessment values, the market value of Property No. 1 changed less than the average residential home suggesting that upon a reassessment the property tax liability would decrease. Property No. 2 would change more than the market average and can expect a property tax increase.  

As evidenced by this comparison, the lack of a reassessment is overtaxing Property No. 1 and benefitting Property No. 2.

The following chart shows the relationship between two properties based on their assessments. 

Property No. 1 pays more property taxes (about $500 per year) than Property No. 2 as it has a higher current assessed value, based on 2016 market conditions. However, the recent sale prices indicate the townhome has an equivalent, if not higher, market value than the single-detached home.

The tax liability cannot be allocated fairly as the outdated assessments do not accurately reflect how values have changed between property types, even within the same tax class.

Conclusion

This study of residential sales in Vaughan highlights specific market sectors (by value and/or property type) that are paying more than their fair share of property taxes because of the delayed reassessment in Ontario.  

Property assessment values are intended to reflect the real property market; however, the lack of a recent reassessment in Ontario has led to an outdated tax system. As a result, property taxes are no longer aligned with current market values.

By freezing the valuation date, the submarket shifts are decoupled from the mechanism that allows for the fair distribution of the tax burden.

The key takeaway from this study should be that up-to-date property assessments are essential to ensure a fair allocation of the property tax burden. More frequent reassessments would mitigate this issue, which is why annual reassessments are considered the ‘gold standard’ within the industry and are legislated in Alberta and British Columbia among other jurisdictions.

As demonstrated by the findings in this report, a delayed (or lengthy) reassessment cycle means certain properties are paying property taxes which exceed what their current market value suggests is appropriate.

 In straightforward terms, the delayed reassessment in Ontario is creating property tax winners and losers, in a system that should be built on fairness.