TAXPERTS PROPERTY SERVICES LIMITED

2. ASSESSMENT PRINCIPLES - - ASSESSMENTS AND APPEALS

1. PRINCIPLES OF FAIRNESS, CONSISTENCY AND EQUITY
2. THE NEW 2009 PROCESS COMPARED TO THE PRIOR PROCESS

1. PRINCIPLES OF FAIRNESS, CONSISTENCY AND EQUITY

A basic principle of tax equity is that each taxpayer should bear only their fair and equitable share of any tax liability having reference to comparative values of similar homes within similar neighbourhoods. In assessing properties, the courts have stated that the primary goal is to preserve the principles of “consistency, uniformity and equity”. If your home is assessed too high then you are paying more than your fair share of municipal taxes. If your neighbourhood is over-assessed, then you are subsidizing other areas in your municipality. Mayor Miller has announced that 2009 taxes in Toronto will be going up by about 4%. Toronto will set the mill rate so as to raise sufficient funds to meet its budget. Keep in mind that provisions for charging for garbage, car licenses and other similar fees including the Toronto Land Transfer Tax which came into affect on March 1, 2008 were created to increase city revenues to meet budgets. Legally, municipalities are not allowed to have deficits, so, to be fair to Mayor Miller and in light of the extra costs for education, welfare and public housing down-loaded onto the municipalities by the Harris Tory provincial government - - which that government falsely claimed would be “tax-neutral” - - cities are struggling to meet budgets and taxpayers are facing increasing municipal taxes.

The “Current Value Approach” (CVA) used by impact since the changes to a more ‘modern’ approach were made in 1997 and as set out in the Assessment Act requires that the test be one of what a property would sell for “on the open market between a willing seller and a willing buyer”. So sales must be at arms-length in an open market. A related concept is that the final current value will reflect the “highest and best use’ of a property. Sales such as powers of sale or foreclosures, between family members or related parties such as related companies are to be excluded from the process. Since such sales are usually for under market value, they will not be helpful to an owner appealing their residential property assessment but often MPAC does not realize that a buyer and seller are related and an owner might have knowledge of such a situation. This means that owners and their representatives should watch for properties used by MPAC as “comparable properties” but which fall into this category. They can be challenged as not reflecting the marketplace. Our firm has seen this happen on several occasions but it is usually just an oversight on the part of MPAC as they were unaware that parties, with different surnames were related. We were fortunate to speak to owners who would point out this case where it seemed that a property sold below market value.

For 2009 and later tax years Section 32 (1.1) of the Assessment Act allows for the correction of errors in assessment and in classification by way of an “Amended Notice of Assessment” where there has been a factual error “that has resulted from incorrect factual information about the property”. These errors may be corrected at any time during the tax year. So, if you miss the RFR deadline and later review the data from MPAC in “Your Property Profile” and see a mistake there, you can approach MPAC to correct for the mistake. An example might be, “Gee Mable, we tore down the 2-car garage 10 years ago it is still showing up on our property description”. A dollar adjustment can be made to your current value assessment in this manner.

Section 19 (1) of The Assessment Act reads:

“The assessment of land shall be based on its current value.”

Section 44 (3) of The Assessment Act affecting 2009 and subsequent years reads:

“For 2009 and subsequent taxation years, in determining the value of at which any land should be assessed, the Board, shall,

(a) determine the current value of the land; and
(b) have reference to the value at which similar lands in the vicinity are assessed and adjust the assessment of the land to make it equitable with similar lands in the vicinity if such an adjust would result in a reduction of the assessment of the land.

This new subsection in s. 44 is important since it prevents the ARB from raising an assessment and gives owners a stronger equitable argument that their assessment should be reduced to be more consistent with the assessment of similar properties in their “homogenous neighbourhood with greater weight placed on evidence of how such properties are assessed. S. 44 (2) applied to appeals prior to 2009 and reads: “For taxation years before 2009, in determining the value at which any land shall be assessed, reference shall be had to the value at which lands in the vicinity are assessed.” In a nutshell, the new “and adjust the assessment” is stronger language than the old “reference shall be had”. The change here is that greater weight will be given to evidence of your property being assessed at a higher figure than similar properties in your neighbourhood. At hearings in earlier years, consideration would be given to disparities in assessments but, arguably, the new legislation could be interpreted as making it mandatory on Chairs at ARB hearings to reduce assessments if there is compelling evidence of similar properties in your neighbourhood being assessed at lower values than your assessment.

We believe that we are correct and that owners will be in a stronger position at ARB hearings. In materials we obtained at a public presentation given by MPAC the materials state:

“…the ARB must;

- Determine the current value of the property (accuracy);

AND

- Have reference to similar lands in the vicinity and adjust the assessment to make it equitable only if comparison results in reduction (equity)” and it specifically cites section 44 (3) of the Assessment Act. ( Our Emphasis ) So, it appears that consistency of assessments is AT LEAST on a par with evidence of sales comparisons. This is an improvement for owners. Also note the positive change that ARB cannot increase the assessment of the homeowner/appellant. This too is new.

Once ARB hearings commence on 2009 appeals, we will see if ARB decisions are being rendered on this new basis which seems to place greater value on the principles of consistency and equity. Our guess is that MPAC will not be volunteering evidence of similar properties to yours being assessed lower than yours. Owners will have to dig up their own evidence of such a pattern.

2. THE NEW 2009 PROCESS COMPARED TO THE PRIOR PROCESS

Under the new regime for the 2009 tax year, the onus is on the Municipal Property Assessment Corp. (MPAC) to show that its assessment is fair and accurate. Under the previous system affecting taxes through 2008, the owner was required to meet the two-fold burden of FIRST showing proof of sales of comparable homes for amounts under the assessment for their property. Only if they met that test could an owner then submit evidence of assessments of similar properties for a lesser amount than their assessment. So the object was to prove that you were assessed too high then to support the amount of the dollar reduction in your assessment that you would be granted with the greatest weight given to sales under your assessed value and with some consideration - - “reference” - - given to setting a dollar figure for your assessment that was “fair and equitable” in relation to similar properties in your neighbourhood.

Make sure that you there is not incorrect data on your house which raises the value. Evidence of such mistakes will lead to a reduction in your assessment. With these situations, MPAC Assessors have always been willing and forthright in offering reasonable reductions to correct such situations. If the basic data at the bottom of your Property Assessment Notice, which includes property type such as “Single Family Detached”, frontage, depth, lot area, building square footage or year of construction is mistaken, file an RFR and you will get a receptive and professional response from an MPAC Assessor without the need of hiring a representative. You can also access the MPAC data from their “About My Property” service and get a print-out called “Your Property Profile” which has more detailed information such the number of storeys, the number of bedrooms and bathrooms, garage(s), fireplaces, whether basements are completed and to what extent etc. It will also note negative factors - - proximity to heavy vehicular traffic and nearby hydro power station - - seemingly not factored in to the assessment. Get that report and check it for accuracy. The internet HAS made the process more transparent in some ways.

The Walker/Grad materials on property appeals in their publication “Ontario Property Tax Assessment Handbook” ( Canada Law Book ), describe the process of defining what the correct value of a property is as a value that:

a) is the most probable price, not the highest nor the lowest or average price
b) is expressed in terms of money
c) implies reasonable time for exposure to the market
d) implies that both buyer and seller are informed of the uses to which the property may be put
e) assumes a willing buyer and a willing seller with no advantage being taken by either buyer or seller
f) assumes an arm’s length transaction in the open market and
g) recognizes both the present use and potential use of the property

The key principle which will determine the ultimate figure of the correct assessed value is the application of the test of the “highest and best use”. This simply means that the assessment will reflect the “current value” for what the property would be worth based on getting the highest benefit from use of the property. Another way of stating it is, what is the highest value it would bring in an open market with an informed purchaser who intends to maximize the value of the property. In terms of residential assessments where there is a small, old building on a lot with a high value, the final result will be determined by fixing on the “land value” of the property. This would result where it is apparent that the primary and even sole intent of the purchaser would be to buy the property based on the value of the land. This is the case where there is a buy, the building or home is razed and a new home or building is constructed. Many owners benefit by making a land value argument where there has been a lot of new construction in their area while their home is quite old and not modern in any way. When you sell a property, you emphasize it good qualities and attributes. When filing an RFR to MPAC or taking an appeal to ARB, the goal is to present your property in the least favourable way. It is a legal process and good advocacy dictates that you promote the notion that your property is the worst and least valuable property in your area. Get a reduction then freshen up your property and get a new paint job when it comes time to sell.

For a discussion of the 3 recognized approaches for determining value for commercial, multi-residential, industrial and like properties which use each or a combination of “Direct Comparison Approach”, “Income Approach” and “Cost Approach” you can go to our discussion # 5 entitled “Commercial, Industrial, Multi-Residential”. Do note that for new residential properties and for `land value’ assessments on residential properties an element of the Cost Approach is used. This is also true of renovations including major renovations of properties where MPAC Assessors will look at the actual cost of architecture, materials and supplies in making a “dollar adjustment” to the assessed value of residential properties.