Property taxes support a wide range of community services.
Who can help you
Our BC Notaries would be happy to talk with you about property taxes:
Our BC Lawyers would be happy to talk with you about property taxes:
Ever wonder how your property taxes are determined, or what they are used for?
What are property taxes?
Property taxes are taxes that homeowners pay each year to the government. These taxes are used to support a wide range of government programs and services.
If you own or lease real estate or a manufactured home, the BC government will send you a Notice of Assessment 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
- a list of any exemptions the property might be entitled to
You open the Notice up, take a look, and see that the assessed value of your home has increased 15% in value and you scratch your head wondering if that’s 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
- certain rules, like Vancouver’s Vacancy Tax, become applicable
Let’s dig in to how property taxes are calculated
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. These values are then sent out to homeowners the following January in the Assessment Notices.
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 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, you can pay your property taxes monthly instead of in a single lump sum. This can be arranged with the municipality (by spreading the payment over 12 months).
Also, some mortgage lenders have an optional service where they’ll collect additional amounts from you each month to put into a property tax account, which is then used to pay the property taxes each year.
Can I get out of paying these taxes?
Even if you don’t actually use the services yourself, it doesn’t matter. The community as a whole still benefits from these services, and since you live in that community, you are required to pitch in. The community does better as a whole when it’s children are educated, when the roads are passable, or because the fire station exists for emergencies. 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.
Penalties and interest will be applied to your tax account if you do not pay the tax on time, or at all. In some cases, the property can be seized and put up for auction. Other steps, like liens or demand letters to your employer or bank can be taken as well.
But, if you pay your property taxes faithfully each year, that will never happen to you.
Thanks to Derrick Murphy for assistance with this article.
Tags: property taxes; conveyancing; real property