Recently the governing party of PEI introduced an amendment to the property assessment act in the recent session of the legislature. The present government came into power with an election promise of a “freeze” on property tax assessment…basically meaning that whatever your residential assessment was…it stayed the same, although the mil rate (the multiplier amount to determine the amount of $$ your bill was) was not frozen.
This rate is determined by the province for their share and the community you have your home also submits their amount based upon their budget requirements.
The amendment to the act reads:
9.2 1 b
if an individual acquires a residential property at any time during a calendar year and occupies the property as an owner occupied residential property the sum of
(i) the residential assessment of the property immediately after the owner acquires the property and
(ii) the value of any improvements…
Ok…this is where everyone got concerned with the terminology of the residential assessment of the property immediately after the owner acquires the property….this was seen as that the assessment would then automatically go to a new assessment (which could be the market value or sale price) stay with me…its going to get confusing.
The Act has the following definitions:
Appraise: “Appraise” means to enter into and inspect a property and to determine its market value.
Assess: “Assess” means to value any real property for tax purposes, whether by an appraisal or by use of an adjustment multiplier
Market Value: “Market Value” means, in respect of real property, the most probable sale price of that real property as of comparable properties and the value indicated by rentals or anticipated net income.
As you can see..there is a difference between appraise and assess….in our business appraisals analyze the market value…but the true test is what a willing buyer and a willing seller will agree upon….or
The Appraisal Institute of Canada states: The most propable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently, knowledgeable and assuming the price is not affected by undue stimulus.
Ok…stay with me….get another swig of coffee or other…
The Assessment Act states that
3.(1) All Real Property in the province including real property owned by the Crown shall be assessed, and such assessment shall be made by the Minister.
(2) All real property owned by the Crown or any person shall be assessed at its market value, either
(a) as commercial realty; or
(b) as non-commercial realty
So looking at that- you have a property….it has to be assessed….at market value….but the term Assess means to value for tax purposes….by Appraisal or by adjustment multiplier….
You may have to read that a few times to see the circle….assess and appraise are two different actions but you can assess a property by appraising it...???
What does this mean when you are staying in your home….right now on this sample tax bill it says Summary of Assessment. It has a Market Value (which really should mean Market Value for Assessment purposes) of $142,000 and in 2009 the bill has a value called Frozen Residential of $137,600. You would have your provincial and community mill rate applied to the Residential Assessment….now with the amendment…that will only go up by provincial CPI to a maximum of 5%. That means stay in this house and if the CPI in 2010 is 0% than the assessment will be $137,600. If CPI was 1% than it would go to $138,976
If you were to sell your home…the new buyer will not have their tax assessment be the selling price but what the Market value assessment is -$142,000. The owner’s residential assessment then would be affected by the CPI as per example above while they stay in the property.
So what happens during all this time with the “Market Value Assessment” if you don’t sell and stay in your house….while your residential assessment rises with CPI….the market will either stay the same or rise based upon the assessment process which with existing residential uses the adjustment multiplier which is determined by market activity in certain areas…one sale does not make a market so if one house sells in your neighbourhood for a certain amount per square foot…that does not mean that every house will be painted with the same brush….this is exactly what has been going on within the assessment department for over 20 years. So this process hasn’t changed and it doesn’t appear that it would…Most properties are not assessed at their “true market value” check yours….most would not sell their home for that amount….lower the assessment…lower taxes…higher appraisal…higher amount you can borrow against…hard to have it both ways..
If the government decided to now assess all properties at true market value (as per Appraisal Institute definition) than the assessment roll would increase and the government and municipalities would have to readjust their mill rate or be faced with a tax revolution…that would involve more than just dumping some tea in the harbour.
I don’t have a solution to taxation..I just know I have to pay them….at this point the assessment process may have some hiccups in it and of course no one out there says they don’t pay enough taxes…but hopefully if you have read this far…you may have a somewhat clearer understanding of this process…
If you would like to review other property tax info...go to the Government of PEI's website here
I compared this to trying to order Chinese Food in a French Restaurant.
The opinions above are those of Joel Ives and not of the PEI Real Estate Association. I am not a card carrying member of any provincial government party (although a friend of mine bought me a membership with the PC s in the mid 90’s…I didn’t attend a single meeting or vote for any party issues)