Rachel in Condos, HomeBuying, Money
When you purchase a new home or condominium, on your statement of adjustments, there will be a section that references realty taxes (also known as property taxes). This amount is an estimate only, due to the fact that the Municipal Property Assessment Corporation (“MPAC”) has not yet assessed and therefore assigned a value to your home. There is a significant difference between the amount you will be required to pay in taxes on vacant land versus land with a structure on it (i.e., a home or condo) - likely the structure will cause the value to increase. If you have recently bought a new home, remember to make allowance for a Supplementary Tax Bill in your budget plans as you will get one eventually.
For the first-time HomeBuyer, here is a short note on property tax – MPAC determines the assessed value of each property in the Province of Ontario. Once assessed, the tax bills for residential properties are then prepared by the city twice each year. The interim tax bill is typically issued in February and the final tax bill is issued in June.
It is very likely that for the first year or two (and possibly three) after you live in your new home, your property tax bills will seem low (maybe they will seem high, don’t they always?) This is likely because you are still only paying on the assessed amount of the vacant land. Once the property has been reassessed, the value will include the land plus the structure, and you will be billed accordingly. You should know that your tax bill will likely increase anywhere from 50% to 75% and you should prepare accordingly.
The city will notify you that the property has been reassessed and you will shortly thereafter receive your supplementary tax bill. This bill will represent taxes owing for the time that the structure was put on the land until the present. The longer it has been since you occupied the property, the more the bill will be. Also, the city will expect to be paid fairly shortly after the bill is issued.
In one recent example, a woman bought a condo in 2005. She didn’t receive her supplementary bill until this year, 2007. She owes over $4,000 in taxes and has to come up with the money on fairly short notice. In order to avoid getting caught off-guard, make sure that you are setting aside some funds to cover the amount you will eventually be billed for. One suggestion is to save at least half of the amount that you are currently paying in taxes. Even if you are assessed at a higher amount, you will still have a bit of a cushion.
Rachel Loizos is an associate lawyer at Sotos LLP in Toronto. She practices in the area of real estate law.
