DECEMBER 16, 2014 Page 1 of 39 5. a.1. - CC Presentation to: County of Middlesex December 16, 2014 Presented by: Carla Y. Nell, Principal CYNell Consulting Inc.
DECEMBER 16, 2014 Page 2 of 39 5. a.1. - CC Property Tax as a Funding Mechanism The property tax plays a unique and important role in Canada’s overall tax structure by providing municipal and provincial governments with a source of revenue to support the delivery of services within communities It is important to understand and recognize the strengths and weaknesses of the property tax as a principal source of funding for municipal governments Understanding the purpose and merits of this form of taxation provides an important context and foundation for all stakeholders in the property tax process 2
DECEMBER 16, 2014 Page 3 of 39 5. a.1. - CC The Importance of the Property Tax What is the role of the property tax? Unlike other forms of taxation which are linked to income (income tax) or spending and consumption (sales tax) – the property tax is directly linked to a person’s wealth – as measured by the estimated market value of any property that they own » Ex: Your house, your business, your farm, your industrial warehouse, etc . . . The amount of property tax you pay is determined by the value of your property “AD VALOREM”
DECEMBER 16, 2014 Page 4 of 39 5. a.1. - CC The Property Tax in Ontario What is needed to establish how much property tax each person will pay? The market value of all properties within a municipality must be estimated by an assessor and then the tax is determined and administered by the municipality The amount of the property tax burden is controlled by taxing authorities who establish tax policies and set rates against the assessed value of all property within their jurisdiction to raise sufficient revenue to delivery local services in response to the public’s needs
DECEMBER 16, 2014 Page 5 of 39 5. a.1. - CC The Property Tax in Ontario In Ontario, tax policies are established annually by the upper-tier municipality, which dictate the distribution of the tax burden both within and between tax classes Tax Ratios Discounts for subclasses of property Tax protection mechanisms The upper-tier has no jurisdiction over the education tax portion of the tax bill; this falls under the purview of the Province Local municipalities are bound by these policies and must set rates for their own purposes and administer the property tax in accordance with them
DECEMBER 16, 2014 Page 6 of 39 5. a.1. - CC The 2015 Tax Policy Process Of particular interest to the County of Middlesex is the relative rate of taxation that property classified as “farm” is subject to because of input and concerns received from affected stakeholders The issue of whether any adjustments should be made to that class’s regulated tax ratio of 0.25 must be comprehensively addressed as part of the 2015 tax policy decision making process A comprehensive study and analysis of factors that should inform this decision has been prepared by CYNell Consulting to assist the County
DECEMBER 16, 2014 Page 7 of 39 5. a.1. - CC The 2015 Tax Policy Process Key Considerations include: Changes implemented in 1998 as part of the new Ontario Fair Assessment System (OFAS) ; The rationale for establishing a farm rate for municipal purposes at 25% of the residential tax rate; The range of flexibility available to municipalities to alter or vary the tax burden of any class of property using the variable tax rate mechanisms currently in place; Factors municipalities consider in approaching this range of flexibility and key considerations associated with adjusting tax ratio relationships; Sensitivity analysis to quantify the impact on other classes of lowering the farm tax ratio and the effect on the overall distribution of the upper- tier’s between its constituent lower tiers; A survey of upper tiers to determine which municipalities in Southwestern Ontario, if any, have reduced the farm class tax ratio to below the 0.25 starting point; Factors affecting changing market values and current value assessments (CVA’s) relied on for property tax purposes for farm property; and An analysis of current value assessments versus sale prices for this property type.
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DECEMBER 16, 2014 Page 9 of 39 5. a.1. - CC Overview of Reform Throughout the early 1990 ’s, various comprehensive reviews of Ontario`s assessment and property tax system were undertaken: Report of the Provincial-Municipal Social Services Review The Hopcroft Report Fair Tax Commission The Golden Commission The Who Does What Panel All proposed various changes to Ontario’s regime dealing with: assessment, service responsibility (province, municipalities and school boards) Pre - 1970 1998 2004 - 2009 2012 & Beyond 1970 - 1997 1999 - 2003 2009 - 2011
DECEMBER 16, 2014 Page 10 of 39 5. a.1. - CC Overview of Reform Under the Harris Government’s leadership the Ontario Fair Assessment System (OFAS) was officially implemented effective January 1, 1998 to achieve the following goals: Reduce Government costs through Provincial-Municipal Service Realignment Lower property taxes Bring consistency to assessments across Ontario Improve transparency of the system: simple to understand, comparable taxation Province-wide, increase accountability of local government Pre - 1970 1998 2004 - 2009 2012 & Beyond 1970 - 1997 1999 - 2004 2009 - 2011
DECEMBER 16, 2014 Page 11 of 39 5. a.1. - CC Overview of Reform The core elements of the original 1998 reforms included: A re-centralization of the Assessment Function and the formation of the Ontario Property Assessment Corporation (OPAC), subsequently re-named Municipal Property Assessment Corporation (MPAC) The introduction of a Current Value Assessment (CVA ) Frequent and consistent valuation updates and uniform valuation dates Establishment of new assessment appeal processes and mechanisms Pre - 1970 1998 2004 - 2009 2012 & Beyond 1970 - 1997 1999 - 2004 2009 - 2011
DECEMBER 16, 2014 Page 12 of 39 5. a.1. - CC Overview of Reform The core elements of the original 1998 reform efforts included: Elimination of the Business Occupancy Tax (BOT) and the introduction of multiple property classes and a system of variable tax ratios A “tool kit” of optional policies and programs to allow local municipalities to shape their individual taxation schemes to local circumstances, priorities and preferences Provincial take-over of tax levy and rate setting authority for education purposes (tied to education finance reform and introduction of per-pupil funding) – Local Service Realignment (LSR) and changes to municipal grant structures Pre - 1970 1998 2004 - 2009 2012 & Beyond 1970 - 1997 1999 - 2004 2009 - 2011
DECEMBER 16, 2014 Page 13 of 39 5. a.1. - CC Overview of Reform The core elements of the original 1998 reform efforts included: Provincial take-over of tax levy and rate setting authority for education purposes (tied to education finance reform and introduction of per-pupil funding) – Local Service Realignment (LSR) and changes to municipal grant structures Downloading of the farm tax rebate program to municipalities Pre - 1970 1998 2004 - 2009 2012 & Beyond 1970 - 1997 1999 - 2004 2009 - 2011
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DECEMBER 16, 2014 Page 15 of 39 5. a.1. - CC Tax Treatment of Farm Properties – Pre and Post OFAS (1998) Pre- 1998: Municipalities collected property taxes from farm properties at the full residential mill (tax) rate for both municipal and education tax purposes Under the Province’s Farm Tax Rebate Program , the Provincial government provided farmers with a rebate of their property taxes equivalent to 75% of the amount they paid upon receipt of a qualifying application for a reduction in their property tax liability
DECEMBER 16, 2014 Page 16 of 39 5. a.1. - CC Tax Treatment of Farm Properties – Pre and Post OFAS (1998) Post 1998: The Farm Tax Rebate Program was eliminated The Province created a unique “farm” class of property and regulated that the rate of taxation to be applied to such properties would be 25% of residential tax rate for both municipal and education tax purposes Adjustments were made to Provincial grants in response, however, the net result was a redistribution of the “cost” to taxpayers in other classes of property who ultimately absorbed this change in farm tax burden
DECEMBER 16, 2014 Page 17 of 39 5. a.1. - CC Tax Treatment of Farm Properties 1998 through 2014 The mandatory reduction of the farm tax rate to 25% of the residential property class has remained in place Municipalities have also been granted an expanded range of flexibility to provide further tax relief to the farm class in the form of lower tax ratios Only a handful of municipalities across the Province have approved decreases in the farm class tax ratio to below the regulated 0.25 threshold; these include: the Municipality of Chatham-Kent, the Cities of Ottawa, Hamilton and North Bay, as well as Halton and Durham Regions
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