I know there are some misconceptions about municipal property tax and how your assessed property value relates to the property tax you pay. I will use some examples to show the relationship.
We have a small city which has two properties. One property has an assessed value of $300,000, and the other has an assessed value of $1,000,000. The small city has $1,300,000 in total assessed property value.
This small city of two properties has $10,000 in expenses. The city will need to collect $10,000 in property taxes to pay for these expenses.
To calculate the property tax due, the staff at the small city need to set a rate. This rate is $10,000 divided by the total assessed value of $1,300,000. The rate is 0.00769231.
The owner of the first property will pay $300,000 x 0.00769231 = $2,307.69 in property tax.
The owner of the second property will pay $1,000,000 x 0.00769231 = $7,692.31 in property tax.
A year later, assessed property values have changed. Both properties have increased 20% in value.
The first property now has an assessed value of $360,000.00.
The second property now has an assessed value of $1,200,000.
The small city still has $10,000 in expenses, so it will need to divide the $10,000 in property tax it needs to collect by the new $1,560,000 in total assessed property value. The rate is 0.00641026.
The owner of the first property will pay $360,000 x 0.00641026 = $2,307.69 in property tax.
The owner of the second property will pay $1,200,000 x 0.00641026 = $7,692.31 in property tax.
The property taxes did not change.
The following year, property values have stayed the same, but the cost of delivering services in the small city has increased. The city now has $12,000 in expense, so they need to raise $12,000 in property tax. The new rate is $12,000 divided by $1,560,000 in total assessed property value which equals 0.00769231.
The owner of the first property will pay $360,000 x 0.00769231 = $2,769.23 in property tax.
The owner of the second property will pay $1,200,000 x 0.00769231 = $9,230.77 in property tax.
The city’s expenses and both properties’ taxes went up 20%.
A year later, the property values change yet again.
The first property owner’s townhouse increases in value 20%. The second property owner’s single-family home increased in value by 40%.
The first property now has an assessed value of $432,000.00.
The second property now has an assessed value of $1,680,000.
The small city still has $12,000 in expenses, so they still need to raise $12,000 in property tax. City staff divide $12,000 into the new total assessed property value of $2,112,000. The rate is 0.00568182.
The owner of the first property will pay $432,000 x 0.00568182 = $2,454.55 in property tax.
The owner of the second property will pay $1,680,000 x 0.00568182 = $9,545.46 in property tax.
Even though the city’s expenses did not change, the first property owner sees an 11.4% decrease in property tax while the second property owner sees a property tax increase of 3.4%.
As I posted yesterday, Langely City needs to increase its property taxes by 4.35% to cover new expenses. In Langley City, single-family homes increased in value at a faster rate than townhouses or apartments last year.
So let’s look at this final example.
The small city’s expenses need to increase by 4.35% from $12,000 to $12,522.
The first property owner’s townhouse increased in value by 15%. The second property owner’s single-family home increased in value by 30%.
The first property now has an assessed value of $496,000.
The second property now has an assessed value of $2,184,000
The small city has a total assessed property value of $2,680,000. $12,522 in expense divided by $2,680,000 in total property values means the rate is now 0.00467239.
The owner of the first property will pay $496,000 x 0.00467239 = $2,317.50 in property tax.
The owner of the second property will pay $2,184,000 x 0.00467239 = $10,204.49 in property tax.
The small city’s expense increase 4.35%, the first property owners taxes decrease by 5.6% while the second property owners taxes increase by 6.9%.
These examples show how a city’s budget increase, changes in assessed property values, and property taxes are related.
You can see the actual changes in your property taxes over the years by visiting Langley City’s Property Information search portal.
3 comments:
Mr. Pachal. I am wondering if you would like to retract your willingness to take a Political Hit comment? I understand your description and explanation of how property taxes are calculated. But you are assuming that all homeowners can afford an increase in their taxes irregardless of what type of property they own? Why should it be acceptable for a detached homeowner to have a 6.9% tax increase over the previous year? I will advise you that making Political statements that are deemed negative can come back to haunt you at municipal elections. Thanks Sean Ploss.
Thanks for the comment.
Yes, detached and attached houses changes at different rates, making for a situation where some people see a sizable tax increase while others see a decrease. You are right that it isn't fair.
Council has been asking the provincial government to allow two residential tax classes attached and detached to set two different rates so that we don't have this massive variation in tax changes. Right now there is only one residential tax class under BC law.
The first time I posted about this was five years ago. https://sfb.nathanpachal.com/2016/02/city-of-langley-proposes-resolution-for.html
Since that time, we've met and talked to the Minister of Finance and Minister of Municipal Affairs on many occasions.
We've also been lobbying other municipalities to support creating two residential property tax classes.
As for the Environmental Coordinator, we urgently need that position given that we need to take aggressive action on climate change in Langley City.
To see the primary driver of this year's tax increase, please have a look at: https://sfb.nathanpachal.com/2022/01/rcmp-contract-costs-driving-proposed.html
Thank you for your response Mr. Pachal. I appreciate you taking the time. I definitely agree that we need to take the climate emergency seriously. I respect that Langley City agrees. My frustration is that considering where we are at with such a large increase in assessments for detached properties this year and such a high rate of inflation. That council members should have deferred and additional expense of a new position at the City. Next year revenue from the casino along with less likelihood of a large property assement for detached homes. Would be easier financially for taxpayers to absorb. I am not sure if you have a family. But if you could understand how much the cost of living in Vancouver is for a family these days. I would appreciate it. Have a good day.
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