Property taxes support a wide range of community services.
Ever wonder how your property taxes are determined, or what they are used for?
What are property taxes?
Property taxes are a special kind of tax that homeowners pay each year to the government. These taxes are used to support a wide range of government programs and services.
The BC government sends a Notice of Assessment to property owners each January. That Notice will have information in it like:
- the assessed value for the land and the improvements (buildings) on the land
- the property’s classification
- available exemptions
You open the Notice up and take a look. You see that the assessed value of your home has increased 15% in value and you scratch your head. Is this a good thing (your house is now worth more!) or a bad thing (your property taxes are determined based on your houses assessed value)?
Property Taxes are calculated using a number of factors, including:
- the kind of property you have: manufactured home, house, farm, First Nations land, commercial property, etc.
- where the property is located: in a city, in a rural area
- what part of the province the property is in: Lower Mainland, the Okanagan, the Peace River, etc.
- the cost of the services your community needs
Your property taxes generally only increase if:
- your property value increases relative to other properties
- your municipality increases its spending, and therefore needs more revenue
Check out the math!
Let’s create the fictional municipality of Summerpeach BC, located right here in the sunny Okanagan. Summerpeach has 200 houses, one fire station, no police station, a local “dump”, a water treatment plant, and a small K-12 school. It has no hospital.
Each year, BC Assessment evaluates all of the properties that existed in Summerpeach on October 31 of that year. It estimates the value of these properties using local real estate market conditions and other factors. The government then sends the assessed value to each homeowner in an Assessment Notice the next January.
Summerpeach Municipal Council also gets this property value information. Summerpeach now knows that it has 200 properties, worth approximately $100,000,000 in total.
Summerpeach’s Municipal Council then determines what kinds of services it needs for the year, and what those services will cost (it’s a small town, so let’s say it only needs $800,000 to pay for schools, fire, police, waste and other services). Summerpeach must pass a balanced budget each year, so it must make sure it is generating enough revenue each year (from property taxes) to pay for these services.
Summerpeach’s council divides the amount it needs ($800,000) by the total property values ($100,000,000), giving it a tax rate of $8 per $1000 of property value. Then it applies this tax rate to each individual property value to get the property tax amount for that property. So the person with an $500,000 house on the edge of the lake will likely pay property taxes of $4,000.
Ways to lower your property tax burden
There are several ways you can try to reduce the tax burden.
First, if you think your assessed value is too high, you can request an appeal of your property assessment, following the instructions on your notice of assessment.
Homeowner grants are available for most people who live in a home they own, and can help lower your tax bill. Higher grants are available for seniors and people living in “rural communities” (including the entire Okanagan). You can read more about the different grants on the BC Government website.
You can also defer your property taxes – this is a loan program available in certain situations. In this loan program, the provincial government pays your property taxes each year, and that amount is added to a loan which is secured on title to your property. When you sell your home (or otherwise transfer it), you need to pay that loan off.
Lastly, if your property is in a city or town, you can pay your property taxes monthly instead of in a single lump sum. You can set this up with the municipality (by spreading the payment over 12 months).
Also, you can ask your mortgage lender if they have a “tax account” service. This is an optional service where you pay an additional amount to your lender each month. They put this amount into a property tax account. The lender then uses the funds from this account to pay the property taxes each year. Not all lenders offer this service, though!
Can I get out of paying these taxes?
No.
Even if you don’t actually use the services yourself, it doesn’t matter. The community as a whole still benefits from these services. We all pitch in to make sure these services are available to everyone. Educated children, passable roads and fire stations all make our community better generally. Even if you live in a rural area, with no one else around for miles and miles, you still have to pay property taxes, because you will still benefit from various provincial services.
If you do not pay your property taxes on time, or at all, penalties will apply. In some cases, the property can be seized and put up for auction. Liens or demand letters to your employer or bank can also happen.
But, if you pay your property taxes faithfully each year, that will never happen to you.
Why do I care?
If you are buying or selling a home, you will share the property taxes for the year with the other party to your contract. This adjustment, or shared expense, is one of many closing costs you will have to deal with when you are calculating the finances for your transaction.
Call us!
Want more information on how property taxes will affect your purchase or sale? Give us a call!