BC Assessment is the provincial authority that develops and maintains real estate property assessments throughout British Columbia. Click for a quick overview of BC Assessment's work, services and more.
The Overview above will give you great picture in how the BC Assessment process and details work. The number one thing to keep in mind is that the value that is generated by BC Assessment requires that properties be assessed as of July 1st each year. So if values have gone up, down or stayed consistent from July 2nd to December 31 in the balance of the year, that will not be reflected in the Assessment you receive in January.
Below is my annual Property Tax 101 information.
Assessments vs. Taxes
It may seem counterintuitive, but assessment increases don’t necessarily result in tax increases.
Every city’s budget is set completely separately from assessments, some cities know more than a month before assessments are updated (when they budgeted spending) exactly how much money was going to come in from property taxes, even before the assessments were available. From a budget perspective, it doesn’t matter to a city whether assessments rise or fall, since the budget is set.
So, here it is – Property Tax 101
Each year, every city does its budget process, and determines how much it will cost to provide the services (police, fire, parks, roads, etc.) that it’s responsible for. Usually it’s a few percentage points higher than the previous year’s budget, accounting for such cost increases as inflation, increased service demand, increased regulation (from senior governments), and downloading of increased responsibilities (from senior governments). City Council actually wrestles quite hard about every line item, trying to keep our tax increase as low as possible while covering the needed services and investments. Some of the arguments get heated. But when it’s all done, each city sets its budgeted spending. That’s the “expenditure” side of the budget, and that’s where all the decisions are made.
On the revenue side, by comparison, there are few decisions to be made. In BC, similar to other Canadian provinces, cities are required to collect their needed taxes based on property value (called “assessment”) as established by BC Assessment (BCA), a provincial agency. Assessments are used to determine each resident’s “share” of the city’s expenditures. In December/January each year, BCA provides the valuation of all the properties in the province (importantly, the assessments are based on estimated fair market value as of the previous July 1).
Once BCA finalizes those values (after most appeals are finished in March), and the city sets its budgeted expenditures (which some cities did back in December), the city’s tax department can calculate the tax rate needed to raise exactly the specified revenue needed for the budget. The Tax Rate (often called the “mill rate"), when multiplied by the total value of all the property in that class across the city, will equal the total revenue needed to be collected from that class of property (residential, commercial, industrial, etc.)
That probably sounds complicated, so let’s simplify it.
A Simplified Example
Let’s use an example, simplified completely; let’s ignore a whole bunch of complicated details like commercial property taxes, user fees, development fees, parcel taxes, etc. Again, for simplicity, let's say that the city's budget last year raised $100 million from property taxes from a population of 100,000 (an average of $1000 per resident) to fund the $100 million budgeted expenditures. Let's say that BCA last year calculated our 40,000 residential properties (average of 2.5 residents per household) at between $200,000 and $2,000,000, with an average of $500,000. So, the aggregate value (the total of everybody’s assessment) comes back with a total of $20 billion in residential property values in our city. At that point, the City's finance department does the math ($100 million needed from taxes, divided into $20 billion in aggregate property value) and comes up with a required tax rate of .005, or a “mill rate" of $5 of tax per thousand dollars of assessed value.
If your home’s assessed value was $500,000 (the municipal average in our simplified example), then your taxes last year were $500,000 x .005, or $2500.
So that was last year; what happens in a year that assessed values rise substantially? Again let's simplify our example by saying that the city's costs don't increase at all (its budget stays at $100 million). In January, BC Assessment reports that the average property value increased by, say, 25%, such that the new aggregate value is $25 billion. A windfall for the City? No, though some people think that everyone’s taxes would rise by 25%, and the city would automatically get 25% more revenue. But it doesn’t work that way, as we’ve already set how much money we need to raise. Instead, the Finance Dept does the math again (Budgeted Costs over Aggregate Value, or $100M / $25B), and the new tax rate is .004, or $4 per thousand. If your property experienced the same increase in value as the average (up 25%), your assessment notice shows its new value of $625,000. This value would be multiplied by the new mill rate of .004, and you would pay $2500 — the same as last year, because the City’s budget didn’t increase, and your assessment changed by the average.
But what if your property value increased by less than the average? In this scenario, an assessment increase that is less than average would actually result in your taxes going down. And if your property value went up by more than the average, your taxes (or your “share” of the city’s costs) would increase.
Of course, most municipalities are facing the challenge of rising costs, both conventional inflation and cost pressures from such issues as downloading, increased regulation and climate change. But the principles are the same if your city institutes a 3% tax increase; if your property value increases by the same as the average, then you'll face the 3% budget increase. Most properties, though, will face assessment increases either higher or lower than the average (and a few will see decreases).
Those are the principles behind property taxes. Of course, we make it more complicated by establishing a much higher tax rate on commercial properties, by exempting some properties (owned by charities, for example), instituting parcel taxes, etc. Plus, any new buildings added to the assessment roll (new development) tend to lower the tax rate (since the city’s costs are spread out over more properties), though of course on the expenditure side there is a cost to providing services to new buildings/residents.
Summary
The main principles are these:
- the increases in property values that residents are experiencing don’t result in an increase in revenue for the city,
- property values don’t tell cities how much tax they will bring in, they only determine how the tax bill will be split up among residents,
- if your property value rose by more than average, your taxes will rise by more than the budget
