Property Taxes : The One Sure Thing In Real Estate

[00:00:00] Welcome to the Canadian Real Estate Investor, where host Daniel Foch and Nick Hill navigate

[00:00:06] the market and provide the tools and insights to build your real estate portfolio.

[00:00:13] Welcome back to another episode of the Canadian Real Estate Investor podcast.

[00:00:16] My name is Daniel Foch and I am joined here by none other than the lovely Nick Hill.

[00:00:22] I love when you call me lovely, it's such a heart-only way to begin every episode

[00:00:28] and we've got another great episode lined up for you today about a topic that we haven't

[00:00:33] really touched on in depth so we felt it finally deserved its own episode.

[00:00:38] But before we get into that, keeping with recent tradition, which I've been enjoying,

[00:00:44] let's start things off with reading one of the great reviews of the show by one of our

[00:00:50] awesome listeners.

[00:00:51] Dan, hit me with it.

[00:00:53] That tradition by the way is you leave us a review on, you can only leave a written review

[00:00:58] on Apple Podcasts.

[00:01:00] But if you don't write anything and you leave us just a five-star review on Spotify, we

[00:01:05] will imagine what you wrote based on your review.

[00:01:09] But you leave us a written review on the podcast and then every other episode we read it

[00:01:15] allowed on the show.

[00:01:18] And it's kind of a competition to see who can leave the best review so might be you.

[00:01:23] This week it's Jen in brackets WPG, which we were debating before the show is at Winnipeg

[00:01:31] or I thought it was women's PGA tour.

[00:01:33] I think we got a professional golfer named Jen who is leaving us.

[00:01:36] That would be awesome.

[00:01:37] Jen helped me with my backswing if that's the case.

[00:01:40] I mean when it's not WPGA, it's LPGA.

[00:01:43] Ladies perfectly.

[00:01:44] Yeah.

[00:01:45] So I think it's Winnipeg.

[00:01:46] Jen from Winnipeg.

[00:01:48] So what did Jen say about us?

[00:01:52] Jen left us a five-star review and she said, I love listening to you brilliant cats.

[00:01:56] Meow.

[00:01:57] You have actually saved me out?

[00:01:59] No, it's not me out.

[00:02:01] You have great voices.

[00:02:03] Which surprises me actually because sometimes I find my voice to be very modest on boring.

[00:02:08] Never.

[00:02:09] But you have great voices and knowledge to share with us Canadians.

[00:02:12] You make me so excited to become a future real estate investment and replenish my love for

[00:02:16] houses.

[00:02:17] Thank you for sharing your expertise, Dan and Nick.

[00:02:20] You are very welcome Jen and you are very welcome and thank you very much to everyone that

[00:02:25] takes the time to rate us and leave us a review.

[00:02:27] So really love to hear it.

[00:02:29] But now it's time to get into the bulk of today's episode.

[00:02:34] We're going to start things off with a little sane.

[00:02:37] Now we've likely all heard some variation of this famous sane or quote before and it's

[00:02:44] something along the lines of nothing is certain in life other than death and taxes.

[00:02:50] Kind of grim.

[00:02:51] Well that famous idiom comes from founding father of the United States, Mr. Benjamin Franklin

[00:02:58] himself who wrote it all the way back in 1789 in a letter to another politician that said

[00:03:08] in quotes, our new constitution is now established and has the appearance that promises permanency.

[00:03:15] But in this world nothing can be said to be certain except death and taxes.

[00:03:21] Very morbid.

[00:03:22] Just please.

[00:03:23] That guy's more of a cynic than me that's for sure.

[00:03:26] I guess he is Benjamin Franklin.

[00:03:27] He's the guy on the hundred dollar bills.

[00:03:29] Yes.

[00:03:30] The guy that his face is always there's like rappers that has to have his like face tattoo

[00:03:34] and tattoo for sure.

[00:03:35] Automate the Benjamin's.

[00:03:37] Yeah, that's it.

[00:03:38] We got to make a couple more Benjamin's before we go get tattoos of Mr. Benjamin on ourselves.

[00:03:44] Yeah.

[00:03:45] So today we're going to be talking about all things property taxes, what you need to know

[00:03:48] about them, why they exist, what they're based off of, how to pay them and more.

[00:03:54] And you know we're going to take a little historical trip because property taxes have been

[00:03:58] around a hell of a lot longer than in 1789 when old Benjamin came up with his famous

[00:04:06] sane.

[00:04:07] The earliest knowing tax records dating from approximately 6,000 years BC are in the

[00:04:14] form of clay tablets found in the ancient city state of Lagash in modern day Iraq just

[00:04:20] north of the Tigris and the Euphrates rivers.

[00:04:24] Now back then the king used a tax system called Bala which meant rotation.

[00:04:29] The assessors, the taxes has to focus on one area of the city state assessing and taxing

[00:04:36] one area each month.

[00:04:38] It seems like a simple enough thing.

[00:04:41] It's like you've divided into 12 men like that's like a hunger games, 12 districts.

[00:04:45] I think it was hunger games all the way back then.

[00:04:48] Yeah, probably.

[00:04:50] You know what it is interesting though like feudal system was just like they would

[00:04:53] just take a portion of your crop.

[00:04:54] Yeah, like you know and like it's not anyway property taxes were used there after an

[00:04:59] Egypt babelon Persia and China throughout the ancient world.

[00:05:04] Most people were poor and lived in hobbles.

[00:05:07] Is that hobbles?

[00:05:08] I think it's like kind of like just a actually like a dirt clay stick shack.

[00:05:12] No, that's what that's in Bali most people stay at hostiles.

[00:05:15] Right.

[00:05:16] Right.

[00:05:17] Well that's Bala is what the thing says.

[00:05:19] Almost yeah.

[00:05:20] And we're getting close.

[00:05:21] I get this.

[00:05:22] I'm not going to flatten somewhere in here.

[00:05:23] Yeah, it's the primary focus of early property taxation was land and its production value

[00:05:29] right?

[00:05:30] They kept records about who own titles to the land along with the size of their land so

[00:05:34] that they can establish how much money this individual needed to pay.

[00:05:38] Yeah, exactly.

[00:05:39] And since essentially the beginning of civilization property taxes have been a major source of

[00:05:46] revenue for most governments or governing bodies as we know them.

[00:05:51] Actually, historian and judge Supreme Court judge back in the day all over Wendell

[00:05:56] Holmes said that taxes are what we pay for civilized society.

[00:06:02] So long story short property taxes have been around seemingly since property ownership

[00:06:08] began.

[00:06:09] I mean realistically like that makes sense because the giving of the land like you're

[00:06:16] giving somebody 10 year of something.

[00:06:18] Why else would you do that?

[00:06:19] It's not just like oh yeah, go have that field over there.

[00:06:21] Like how does that field over there?

[00:06:23] Like anyone come to roll out.

[00:06:24] But the distribution, like the creation of the ownership, the only reason they would do

[00:06:30] that is so that they could have some sort of identifying thing to charge you, you know,

[00:06:37] recurring revenue.

[00:06:38] Exactly.

[00:06:39] They originated big tech entrepreneurs.

[00:06:40] They originated the recurring revenue structure.

[00:06:43] Anyway, so let's look at taxes, property taxes here in Canada.

[00:06:49] Canada is a place that likes to do taxes.

[00:06:52] So yeah, and we're not talking about just to be very clear there's a lot of tax stuff

[00:06:56] to talk about here in Canada.

[00:06:57] You and I aren't exceptionally qualified to do that's why we have experts on the show.

[00:07:01] And this episode is really just kind of focusing on property taxes.

[00:07:06] Maybe we'll do another investor focused tax on.

[00:07:09] It is.

[00:07:10] It's funny because like the thing where they're

[00:07:13] really stands out to me like the utility of property taxes, you know, you're going through

[00:07:17] net operating income and then you want to arrive at your before tax, before tax cash

[00:07:21] flow, BTCF.

[00:07:22] Like that's where you calculate your cash on cash return and whatever.

[00:07:26] But you hear that in your like before tax but that's before income tax property taxes

[00:07:30] already deducted in that in that equation.

[00:07:32] So the other place where you would see this is like when you hear and like the easiest

[00:07:36] way and this is probably a good good not an acronym.

[00:07:39] It's an initial initialism.

[00:07:40] I don't know why they didn't make it in an acronym.

[00:07:43] Now they now that I tell you I can't wait to hear this.

[00:07:46] TMI.

[00:07:47] They could have done.

[00:07:48] They could have done Tim.

[00:07:49] They could have done Tim TIM.

[00:07:50] TIM.

[00:07:51] But taxes, maintenance and insurance right so common line.

[00:07:55] I was super caught every investor's yeah.

[00:07:58] And maintenance can be broken up into a million different courses like you know the more lines

[00:08:02] you put in the more things for to confuse your investors.

[00:08:05] I don't know you know that's what seems like the people are doing these days.

[00:08:09] So anyway municipalities in Canada apparently will see a significant property tax increases

[00:08:14] in 2024.

[00:08:16] It's almost as though these municipalities are feeling some budget constraints and they

[00:08:20] need to generate revenue all of a sudden Toronto is one of the substantial property tax

[00:08:25] increase while I think Toronto increased by 10 percent, 10.5 percent Vancouver plans

[00:08:30] a 7.4 percent increase Montreal known for its low tax rates will face the largest hike

[00:08:35] in 13 years.

[00:08:36] Property taxes are being raised to combat fiscal crises and inflation.

[00:08:40] There you go Dan, you call that.

[00:08:42] I thought it was just us who did the inflation stuff.

[00:08:44] No no everyone likes inflation these days so what who does the assessment is the question

[00:08:50] right?

[00:08:51] We had the assessors back in ancient times go around and do their thing.

[00:08:55] Who does it today?

[00:08:56] Who decides what each property is worth?

[00:08:59] Well you've got impact the municipal property assessment corporation.

[00:09:04] They're an independent not for profit corporation funded by all of the municipalities on

[00:09:11] Ontario and their role.

[00:09:12] There's one of these for every province we're going to cover a couple of other ones but

[00:09:16] yeah.

[00:09:17] And that just has a ton of good information on their website so we'll just cover that

[00:09:20] and they all kind of work the same although you know Ontario assessments are notoriously

[00:09:25] way off from the actual value of the property and it doesn't actually matter by the way

[00:09:28] which we'll get to later like because assessments are technically revenue neutral but in BCU

[00:09:34] often you're like oh how sold under assessment how sold over assessment in Ontario everything

[00:09:38] sells over assessment because the assessments are like.

[00:09:40] Sometimes like drastic.

[00:09:41] Oh yeah.

[00:09:42] Like hundreds of percent of it doesn't matter because like your taxes aren't based on

[00:09:47] the actual value of your property they're based on the percentage of your properties proportion

[00:09:51] of the entire like let's say all of the properties in one town are worth a hundred dollars

[00:09:56] and your property is worth one dollar then you get 1% of the total tax burden of the

[00:10:02] town.

[00:10:03] Yeah that's what we're going to explain it.

[00:10:05] Cool.

[00:10:06] Okay.

[00:10:07] We'll describe it in a bit more sophisticated terms in a minute when we read that from the

[00:10:10] unpack website but anyway what is their role?

[00:10:12] Yeah so they're roles to accurately assess and classify all properties within the province

[00:10:18] of Ontario and again as Dan said there's different governing bodies for provinces so their

[00:10:22] roles would be the same in their perspective provinces and they'll do this obviously a

[00:10:27] body and buy the compliance with the assessment act and regulation set by each one of those

[00:10:33] provincial governments.

[00:10:34] The impact is the largest assessment jurisdiction in North America assessing and classifying

[00:10:40] more than five million properties in Ontario representing three trillion dollars in property

[00:10:47] value and that's assuming like that their assessment is way low to exactly so if assessments

[00:10:52] if it was more like the west coast and assessments were kind of in line with sale price

[00:10:56] that number would likely be more like nine trillion couple properties in the old couple

[00:11:00] couple properties there so they want to say that they are accountable to the province

[00:11:05] the municipalities and of course the property taxpayers on Ontario through a 13 member board

[00:11:11] of directors director as the board of directors is comprised of provincial municipal

[00:11:17] and taxpayer representatives that are appointed by the minister of finance.

[00:11:23] And I would love to just be a professional taxpayer aren't we all yeah it's true I mean

[00:11:29] that literally is I mean when you're professional like certain things in life no it's funny

[00:11:34] though because like in order to be a professional it's something it's like your job like you

[00:11:36] go to do this every day and it's like well I do that with bank taxes maybe maybe we'll

[00:11:41] do Dan in brackets PTP that would be a great like LinkedIn bio professional taxpayer anyway

[00:11:50] property assessments are determined and then they're shared with municipalities so

[00:11:56] and then the municipalities determined investments required to you know upgrade the municipality

[00:12:02] run their operating budget etc so each component of Ontario's property assessment plays an important

[00:12:07] role. The government of Ontario establishes the province's assessment and taxation laws

[00:12:12] impact which is this independent arm municipal property assessment corporation and this

[00:12:16] it's to be a very similar structure province by province so they determine property assessments

[00:12:21] for all properties in Ontario I think we're going to cover Alberta as well yeah yeah we touch on

[00:12:25] uh touch on Berda municipalities then determine their revenue requirements so they say okay we need

[00:12:30] a hundred dollars right and then they say oh next house is worth one dollar and Dan says worth

[00:12:36] ninety nine dollars sort of Nick but that's how we're gonna divide up our taxes come on yeah I guess

[00:12:40] that's okay for me yeah that's when we start our own town that's what it's going to be anyway so

[00:12:48] property owners pay property taxes which pay for the services of the community so like

[00:12:52] urina your municipal roads there's different levels of roads for some are provincial like

[00:12:56] provincial highways as an example on tarot each here on tarot highway x that's because Ontario

[00:13:01] owns it you hear regional road y it's because the region owns it and then there's municipal roads

[00:13:05] that the municipality is responsible for snow plowing and blah blah blah right each level of

[00:13:10] government has different um things that they are responsible for doing and unfortunately you got to

[00:13:19] pay for that stuff because that sounds fair I got a random question here for you based off

[00:13:25] of the the regional roads and the provincial highways and stuff what does it mean when you drive

[00:13:30] fast one of those signs and it says adopt this highway or adopt this road does that just mean that like

[00:13:35] I think you can like pay more money I looked at up way back and I was like we adopt some roads

[00:13:44] yeah I'm like lonely roads out there okay just certain name of them would be great I'm done yeah

[00:13:49] and I want to pay more tax it probably means you just have to like you can pay like an annual fee to

[00:13:53] just like hey this this road's lonely no I don't know I try like garbage clean up or something

[00:13:57] I don't know I don't know what snow plowing up okay you look it up I'm gonna talk here about the uh

[00:14:02] I mean the list thing is adopted a road and what's it's your experience with the rest of yeah how's

[00:14:07] that road been behaving for you the last couple years you had any good times on it tell us all about

[00:14:11] it okay well let's get back to this so uh well Dan's looking up some very important information

[00:14:16] on the adoption I'm gonna look uh I'm gonna talk about the assessment cycle so

[00:14:21] impact completes a province wide assessment update and that happens every four years based on

[00:14:29] legislative valuation now the valuation date established by the interior government is a fixed

[00:14:35] day on which all properties are valued the last province wide assessment update took place in

[00:14:43] 2016 based on January 1st 2016 that was the last valuation date in 2020 the province wide

[00:14:49] assessment update was postponed due to obvious things that happened in 2020 and on November 4th of

[00:14:56] 2021 the province announced the decision to postpone the assessment update again property assessments

[00:15:03] for 2023 and 2024 tax years continue to be based off of the January 1st 2016 assessed value so

[00:15:12] we're like eight years out of date at this point on waiting for another bull market to

[00:15:17] yeah like I don't worry about it well we got one to talk interest rate

[00:15:21] where you know like the rates are like bottoming out again and waiting for rate cuts

[00:15:26] uh don't we all yeah okay so Dan tell me about um the next piece your proper assessment

[00:15:31] do that do you know what a dot yeah yeah I just want to so I feel like when you watch

[00:15:35] like a kid show like I'm thinking like blues clues or something you probably don't do this

[00:15:38] I don't have kids but kids that would just be weird to fight blues clues was like

[00:15:41] kids were kids anyway so you know like the main character will be like sitting there and then

[00:15:46] the other character will be like they'll send them off on like a side quest and then they'll come

[00:15:50] back with the answer that's what I just did I just did it on the podcast though I also feel like

[00:15:55] you know Joe Rogan's like can we look that up yeah like you we just did that but it's only us

[00:15:59] to here so yeah anyway so about the adopt a highway program I was right it was clean and trash

[00:16:05] for this okay Ontario's the highway program yeah it allows you adopt a section of provincial highway

[00:16:10] to keep highways clean by participating in the program you could make a direct contribution to

[00:16:15] the environment by volunteering your time to pick up litter along the sides of the road and

[00:16:21] you can be an individual an organization or a group you just got to send them an email submit

[00:16:25] a form that they will get you then you get accepted you have to get safety trained which makes

[00:16:30] sense that's a reason we're gonna be standing on the side of a road yeah but these are like highways

[00:16:34] these are like usually like gravel or dirt roads cut it that must be different that must be

[00:16:38] like a municipal thing because this says adopt a highway which is like that's big I don't I think

[00:16:42] I need to adopt a side road before I adopt a highway I gotta work yeah yeah get some get yeah

[00:16:48] it's true get some experience first okay so there we go that we figured that out thank you for

[00:16:53] that then okay so I'm gonna go back to my pie analogy and talk about this revenue neutral thing

[00:16:59] that impact is so annual property assessment increases our revenue neutral which means they have no

[00:17:04] impact on the total property tax amount that the municipality might raise rather these changes provide

[00:17:11] for redistribution of the property tax within a municipality based on the value of the property owned

[00:17:17] so this means that the assessment determines the size of the slice of the pie that you as a property

[00:17:21] owner oh with the pie being all of the money that the municipal government needs from their taxpayers

[00:17:28] so does it make sense yeah I like because when you hear just like revenue neutral like I try and

[00:17:33] explain this to people all the time and they're like what that makes no sense but now I think the pies

[00:17:38] makes sense yeah my pie's are delicious they're visual and uh revenue neutral is kind of like

[00:17:43] one of those oxymorons it's like when I told you I had a friend that used to sell everyone he was

[00:17:47] a non equity owner right right like it's not two words that usually are paired too well together

[00:17:53] well I mean when talking about government I don't think they even know how to be like revenue

[00:17:56] neutral would be an important yeah okay so property taxes are mandatory payments the property owners

[00:18:05] are required to pay their municipal government on a reoccurring basis you don't just pay taxes

[00:18:11] and walk away it keeps happening the revenue that those municipalities receive from those taxes again

[00:18:17] typically used and kind of redistributed to pay for things like public services such as

[00:18:23] you know the roads that Dan and I are adopting uh sewers municipal litter on our highway

[00:18:29] yeah come on guys we just bought this we just adombed in this road municipal development

[00:18:34] schools parks fire stations and other things like that and again just snow removal and studies

[00:18:41] there's definitely some studies in there your uh some committees your your public libraries oh yeah

[00:18:46] and of course you know 20 billion dollars with the consultancy yeah that every one of them in

[00:18:50] that's your income tax it goes that's trust me municipal got I worked in municipal government they do

[00:18:54] studies too so what happens then Dan so each municipality will have a slightly different way

[00:19:02] of calculating property taxes but there's a basic formula underlying it that is used to determine

[00:19:06] the property tax amount so property tax times the assessment value or equals the assessment value times

[00:19:12] the municipal tax rate often referred to as a mill rate right so you can often like guess what the

[00:19:18] uh property taxes would be or like you get your worst case scenario Ontario if you put the if you

[00:19:22] just search the municipalities mill rate and multiply it by the uh by the value of the property

[00:19:28] that you're paying but i mean in Ontario the assessments are like 30% less but anyway i think the

[00:19:35] municipal governments are sorry the impact is gradually trying to get these assessments closer

[00:19:40] and closer to reflect reality but yeah just look up the mill rate it varies on a minus

[00:19:44] uh town by town basis and if there if if a if a municipality is increasing like the tax rate or

[00:19:50] increasing taxes like that's not impact doing that they're actually turning up their mill rate right

[00:19:55] like Toronto is one of the lowest ones Vancouver has the lowest in the country i believe i think

[00:19:59] we're going to get to a list and Toronto as the the second lowest yeah so as you said of course

[00:20:06] there is a formula for this just like there is for most things in real estate again just to reiterate

[00:20:11] that is property taxes equals your assessed value times your municipal tax rate or your mill rate so

[00:20:18] beyond this basic formula each municipality and province may have variations on these

[00:20:24] regulations and procedures to assess the value or home so let's take a flight west and hop over

[00:20:33] to beautiful Alberta where they use three different approaches when assessing the typical residential

[00:20:40] property these uh sound remarkably similar to the three approaches to valuing residential property

[00:20:48] on an appraisal that's that's weird so uh we've got the sales comparison approach the cost

[00:20:54] approach and the income approach so the sales comparison approach you do municipality review

[00:20:59] sales of the homes in the area that have similar characteristics and use that data to determine

[00:21:03] the value of the home they are assessing in real estate there's a very complicated term for that it's

[00:21:08] called a comp a comparable then we go to the cost approach municipalities measure the market value

[00:21:15] of the land the properties on plus the cost of improvements less the cost of

[00:21:23] improvement depreciation that's lost in value for improvements of the property and this

[00:21:28] approach is typically used when there are few comps and then the final pieces they use an income

[00:21:35] approach so and again this is when the property is valued based on the income that it produces and

[00:21:39] so more for commercial properties obviously but the municipality estimates what a purchaser would

[00:21:43] pay for the for a property based on its income producing potential such as how much it would earn

[00:21:48] as a rental property in in Toronto um as an alternative there's properties are assessed by looking

[00:21:55] for comparable sales in the area and reviews at least five different factors when assessing

[00:21:59] a property they are location exterior square footage lot dimensions construction quality and age

[00:22:03] of the building and when setting the tax rate the municipality looks at a number of different

[00:22:07] factors and data points usually based on the municipalities budget and goals so since municipalities

[00:22:13] rely on property tax for a large portion of their revenue the more needs municipalities has

[00:22:17] the more municipal municipal services it provides the highest tax rate generally Toronto would fall

[00:22:23] outside of this rule because and the reason is because they get a lot of income from development

[00:22:32] from development charges so that well they also have a huge commercial tax base so they get a lot

[00:22:36] of businesses in Toronto obviously like the financial hub of Canada so they get a lot of business

[00:22:41] income because businesses pay taxes commercial real estate pay tax as well so residential property

[00:22:46] owners Toronto is really made it easy and good for residential property owners you can own like a

[00:22:51] four million dollar house in Toronto and be paying less tax than somebody owns a eight hundred thousand

[00:22:55] dollar house in Kesswick or Calgary or whatever right so it's kind of like it's a shame because they've

[00:23:01] kind of sold out like they've really pond off the cost of running the city on new owners new purchasers

[00:23:07] and on development by building a lot of outfire on that recently right yeah because development charges

[00:23:13] are extremely prohibitive in there I literally wrote a LinkedIn post to tag tag to Mayor Chow today

[00:23:19] and said that you got a wave development charges to get some clear political speaking partner that

[00:23:24] that was cool actually I did speak alongside Mayor Chow at Razzcon the Residental Construction

[00:23:32] Council of Ontario yeah no that was a great one too I mean look it makes when it simply put

[00:23:37] it makes complete sense obviously Toronto being the outlier is brutal because Toronto is the biggest

[00:23:43] city that brings in by far the most money that should likely have higher taxes to support that some

[00:23:51] of us now before everyone in Toronto comes at me for saying that all I'm getting at is when a

[00:23:56] municipality has more municipal services that it provides that money for those municipal

[00:24:02] services comes from the taxes therefore they need a higher tax rate so we'll get back to that

[00:24:08] closer to the end of the episode here then now keep them on your property tax bill might also include

[00:24:13] a number of other fees such as city services possible education taxes which are bundled together

[00:24:21] that all come under your kind of one invoice your one tax bill

[00:24:25] so what is the highest property tax rate in Canada well you know I believe this I didn't

[00:24:35] win a peg as the highest property tax rate in Canada 2.64 percent what's the lowest

[00:24:40] property tax rate in Canada well according to our research cross reference with various other

[00:24:44] sources it is Vancouver at 0.28 percent so a tenth of the rate in Winnipeg wild because I'm headed

[00:24:53] to Winnipeg in a couple weeks we're doing a bunch of big MLI select projects out there McSci is the

[00:24:58] first time I've been there and little teaser Dan and I will both be out in Winnipeg later this year

[00:25:03] to launch an event with the with the team but I'm also from Vancouver and I can tell you

[00:25:09] based off of what I know about Winnipeg and Vancouver they're very different cities and the fact

[00:25:14] that Vancouver's tax rate is substantially lower than Winnipeg doesn't really make sense on paper

[00:25:22] I mean I guess it does in some ways maybe there's more snow removal maybe there's more public

[00:25:27] services needed in Winnipeg but based off of the demographics and the income that you need to live

[00:25:34] in Vancouver seems to be a bit of an issue there anyways paying property taxes through your mortgage

[00:25:40] let's talk about that now you can choose to pay your property taxes through your mortgage your lender

[00:25:46] will include the taxes in your mortgage payment and make the payment on your behalf so one less

[00:25:52] thing for you to worry about you're still paying for it it's just kind of bundled in your payment

[00:25:57] already so you don't see that other funny I had a funny experience with this actually so if

[00:26:03] you're an insured mortgage they I think they most a lenders will require that you do this because

[00:26:08] they want to make sure that your property taxes are paid so I had a lender I'm not going to name the

[00:26:12] lender but I was I was paying my property taxes on my through my loan because I had they

[00:26:20] required that I did that to issue the mortgage and they what did they do they were collecting

[00:26:27] the money but they weren't giving it to the municipality so I kept getting tax bills in the mail

[00:26:32] and they were like overdue overdue overdue and and I was like I'm like I pay my property taxes

[00:26:37] and so but anyway so I just I got the invoices and I didn't and I was like I just started paying

[00:26:42] them because I was like I don't know something's wrong here whatever and then anyway I figured out

[00:26:46] when I would mind mortgage is up for renewal five years that I had literally been or no it was

[00:26:51] never known it was like two or three years I think I went to refer a refire something and I was

[00:26:54] sitting in the bank and and they were like oh like what are your property taxes and I was like well

[00:26:58] you got or no they were like we pay your property taxes at the end of this thing and I was like

[00:27:02] yeah I thought that that was supposed to be the case but I kept getting bills so I just started

[00:27:06] paying my property taxes anyway they had a big truck a change back like dude it's like nine grand

[00:27:12] because it was several years worth of property taxes so they they literally were like out and then

[00:27:17] I was like well here's only late fees because I only I only ever the municipality only ever

[00:27:21] sent and ended up sending me the tax bill when it was late like otherwise I guess they were just

[00:27:26] sending it to the said bank which I'm not going to name and anyway that's a fun story of how to

[00:27:33] accidentally save nine grand yeah I mean don't try that one at home but I made you pay like all

[00:27:38] the late fees and interest on the money in the period of time and whatever so I mean to be honest

[00:27:43] that I hate to say but we I have run into that situation a couple times there seems to be some random

[00:27:48] discrepancies between when that does happen and think the ball gets dropped they are more than I see it

[00:27:54] in other places along the mortgage journey I mean it does seem like a kind of ridiculous thing

[00:27:59] to be doing as a as a bank like I don't know it's just like it seems like a bad use of resources

[00:28:05] but I guess they've obviously done the cost benefit analysis that you know it's better to not risk

[00:28:10] the person getting behind taxes that's what I think it really is behind taxes is a bad thing

[00:28:15] well then it just starts to affect everything right then you get the CRA and you got the

[00:28:19] the government kind of well also if it also if the if the like for property tax it wouldn't be

[00:28:25] the CRA because there would be the municipality but the municipality can force sale right they can

[00:28:29] take you power sale if you're if you're behind on taxes and then the lender would be at an

[00:28:34] in a risk position and so that's probably where they're incentive to do it and maybe for first

[00:28:38] time buyers they just noticed somewhere along or or insured buyers they probably noticed somewhere

[00:28:43] along the way that like you know they maybe weren't paying their property taxes as faithfully

[00:28:47] because they just were new they didn't know you know they didn't get it maybe right yeah I mean

[00:28:51] look that's a great segue into the the next kind of little piece we're touching on here is

[00:28:57] what do you do if you can't pay your property taxes not that if you forget or there's some kind

[00:29:01] of weird discrepancy happening with your you and your lender what happens if you can't yeah so

[00:29:07] if you can't pay your property taxes contact their municipality as soon as possible some municipalities

[00:29:12] offer assistance programs to help homeowners facing financial hardship and their tax payments so

[00:29:18] these programs may offer credits or grants towards your property tax amount

[00:29:23] or access to subsidized programs and services for assistance the you know like lenders do this as well by

[00:29:29] the way like you're big big six banks I think if you declare financial hardship they automatically

[00:29:34] extend your amortization so like that imagine there are consequences by the way to declaring

[00:29:38] financial hardship but anyway that does happen so you know I mean for me here it's interesting

[00:29:45] because we see this a lot right this is the same advice that what if when we've answered that question

[00:29:50] several times what if you can't peer mortgage what if you can't pay your credit card what if you

[00:29:55] can't pay any utilities the worst thing you can possibly do in any of those situations is sit around

[00:30:00] and wait for the call to come in from the person you owe money to the best thing you can possibly

[00:30:05] do is to get proactive and understand that the municipality the bank the utilities company they don't

[00:30:10] want to shut your utilities off they don't want to sell your house they don't want to repossess it or

[00:30:14] power a sailor anything like that they just want to talk to you and communicate and figure out when

[00:30:19] and how they can get your money through some kind of payment plan that they have these assistant

[00:30:23] programs for so well like the worst thing that can happen to them is they get zero dollars if they

[00:30:29] forced you to have to go exactly exactly exactly yeah so anyways just the piece the takeaway

[00:30:36] there is with anything like that pro activity is the best the best thing to do yeah for sure

[00:30:43] so let's talk about property taxes for foreign owners in Canada yeah this is an interesting one

[00:30:48] so foreign property ownership we can't foreign owners do not pay additional property taxes however

[00:30:55] and we did a full episode on this there is that 1% UHT which is the underused housing tax

[00:31:02] that applies to vacant or underused housing and this tax applies to some foreign property owners that

[00:31:10] do not use their Canadian properties as their main residences in certain provinces like British

[00:31:16] Columbia or Ontario foreigners who purchase properties will pay a non-residence speculation tax

[00:31:25] and the rate of that tax varies but is around 20% or higher so substantially higher than your

[00:31:31] average tax bracket yeah and then the UHT generally applies to residential properties owned by

[00:31:36] foreign national their partnerships of Canadian residents that are not used as primary residents

[00:31:42] and are unoccupied for less than 180 days a year yeah so keeping on that again I think that

[00:31:48] deadline is coming up I believe I think it's sometime in February because we did an episode

[00:31:54] of this couple months ago when they initially pushed that that date so let's let's finish things

[00:32:01] off here by looking at the movie to April I think it was the end of April okay um it's still

[00:32:06] a couple more months there let's look at this short study by a friend of the show and always

[00:32:13] a great source of information wowa dot c a they presented the property taxes for the 30

[00:32:22] largest cities in Canada considering two scenarios the first being a $700,000 property value

[00:32:32] and the second being an average priced home in each city now effective property tax rates were

[00:32:38] calculated based on the analysis of over 10,000 home listings considering both their property taxes

[00:32:45] and their listing price so Dan start us off here so the figures are based on fair market values not

[00:32:52] assess prices they just wanted to leave that important note and they also use the term effective rate

[00:32:59] to refer to the ratio of property tax to property values which differs from the mill rate now

[00:33:03] and the difference between the fair market and assessed value thing is kind of the way we

[00:33:09] talked about how like Vancouver's assessments are like the easiest way to say it is like in Vancouver

[00:33:14] you can literally like the the market can say whether or not a property sold above or below assessed

[00:33:19] and it's like relevant whereas in Ontario you never hear anybody even talking about assessment

[00:33:23] because the only place it matters is on your tax bill because they're so far off of the actual

[00:33:27] value I remember I want to a very early deal what for clients saw the assessed value in like

[00:33:33] yeah draw hit the four to like I just paid $800,000 for this and it's worth 320,000 I don't get it

[00:33:40] and I was like okay yeah I know it doesn't make any sense I don't really know how to tell you how

[00:33:45] this makes sense but this is just the way it is okay let's get back to this study by wow here

[00:33:50] the third thing worth noting is the Canadians cities have relatively low effective property

[00:33:56] tax rates with some exceptions being Regina Winnipeg and Sherbrook all of the other 28 cities

[00:34:04] in this study have effective rates below 1% in comparison the average effective rate

[00:34:10] in the United States hovers around 1.3% that's influenced by varying mandates between the US and Canadian

[00:34:17] municipalities yeah so specifically the effective tax rates for Canada's biggest cities Toronto,

[00:34:23] Montreal and Vancouver stand at 0.36, 0.71 and 0.27% respectively so functionally nothing

[00:34:34] really literally like all less than 1% and I mean 1% of a big number is still a big number

[00:34:41] and that's where they go on to say even with these low effective property tax rates in Toronto

[00:34:47] of Vancouver the tax burden for the average homeowner remains not that low so Toronto is $38

[00:34:53] hundred and Vancouver is $3,300. So bear in mind that these numbers were about to read have evolved

[00:35:00] since wow conducted this study in last July slight fluctuations in the market and property values

[00:35:07] etc but let's let's do two things and let's read a couple highlights from this list now remember

[00:35:12] this list is broken up into 30 of Canada's largest cities column A is property taxes for a $700,000

[00:35:20] home which is less than the national average of I believe about $740,000 so I'm just going to do

[00:35:26] the whole list in order here so property taxes of the 30 30 largest cities in Canada from lowest

[00:35:32] to highest of property tax for a $700,000 home so what you would pay for property taxes if you

[00:35:38] own the $700,000 home in in these cities the lowest is Richmond BC at 1841 then we have Vancouver

[00:35:45] Bernabese Surrey Toronto now at $2,500 Oakville Burlington Vaughan Markham Richmond Hill miss a

[00:35:52] saga just getting over $3,000 you're trying to interrupt me well because I wanted to say it's important

[00:35:57] that we are doing the comparison right so let's do the let's look at the 700k home versus the property

[00:36:03] tax for the average price home in that area which obviously jumps it up quite some bit so if we

[00:36:09] look back at the first one Dan Richmond which is a very expensive suburb in the greater Vancouver

[00:36:15] area the lower mainland 1841 then we look at the average price for a home Halifax is actually

[00:36:24] the lowest on that list and it comes in at 20 almost 2300 so there's a there's a big difference

[00:36:30] they're already in just the way that these that the assessment affects it sorry back to the list

[00:36:36] yeah so if you go to if you're trying to do the comparison thing it's like Richmond is $1800

[00:36:42] on a $700,000 home but because their average home price is 1.15 million the tax average property

[00:36:49] tax there on the average home would be about $3,000 anyway again we're going back to kind of ranking

[00:36:55] them not based on the average price home I think I was at Mississauga so after Mississauga you would

[00:37:01] have Halifax Brampton Kitchener Hamilton London and Oshawa and Oshawa is the first one over $4,000 if

[00:37:08] you were to own a $700,000 home they have Oshawa Ottawa Calgary Windsor and Montreal that's kind of

[00:37:19] between four and five thousand in that order La Valle first one over $5,000 which would be 5,000

[00:37:25] on a $700,000 home Saskatoon Gatno Edmonton Quebec City over 6,000 Longay Quebec Regina would be

[00:37:36] over 7,000 which seems like that's like that's a full 1% or yeah 1% over 1% there and then Winnipeg and

[00:37:45] Sherbrook would be the highest almost looks like they're almost hitting $8,000 there that's 8,000

[00:37:51] annual it's crazy yeah so I don't know if you want to go through this maybe just pick a couple or

[00:37:56] like the three yeah we'll do the lowest ones again for the then this is the other column property

[00:38:04] tax for the average price Tom Halifax with the average home price about 525,000 your pain just

[00:38:10] less than 2300 in tax let's jump to Vancouver here with the average home price is 1.24 million

[00:38:17] your pain $3,335 worth of tax so you are paying essentially the same as a $700,000 home in Kitchener

[00:38:26] Ontario jumping down to list where things get more expensive let's look at Markham Ontario average

[00:38:33] home price 1.23 million your pain just less than $5,000 in property taxes essentially the same as

[00:38:41] you would for a $700,000 home in Montreal so again this the point of this was to just show the

[00:38:48] difference in calculating based off of a standard $700,000 home versus what the average price

[00:38:58] home in that market is so the final question we are going to ask ourselves here is why should investors

[00:39:04] even care about property taxes they seem to make up a smaller line item they're a necessary evil

[00:39:10] remember the only two things in life that are certain are we all going to die and we're all

[00:39:13] going to pay taxes so high level for me property taxes shape the local housing market and they

[00:39:20] shape the local community a lot as well right they they influence the cost of buying the influence

[00:39:25] the cost of renting or investing in homes and apartments and buildings and that in that

[00:39:30] certain area and they they'll have an effect on public services like schools and arenas parks some

[00:39:37] of those poll factors we talk about for people to choose a market to invest in so my other thing is I

[00:39:45] would I would argue that it's the only non-negotiable the only non-negotiable line item right so like

[00:39:53] yeah you can't really let me tell you municipality I don't want to pay this I mean you technically

[00:39:58] can maybe we should actually go through what that is so you can go and argue your assessment yeah yeah

[00:40:03] and and impact will come and reassess you and yeah my question a different assessing company if

[00:40:09] you have had a bad experience with with one of them I believe yeah maybe not I don't know if

[00:40:14] you can do that on Ontario but anyway so so what you can do is you can you can think you can't go

[00:40:17] to the municipality and be like reduce my taxes right like charge me less than everyone else in

[00:40:22] the municipality right but you can ask for a new assessment and you can there's letters that you

[00:40:26] can do you can also get reductions for things like protected farm land or sorry protected forests so

[00:40:31] you can get eight years to be able to mafra but Ontario Ministry of Food and Agriculture I think it's

[00:40:36] I can't remember what it is now but anyway any of these like every minutes or every province has

[00:40:41] different programs where you can ask for reductions if you're a farmer as an example because agricultural

[00:40:44] is productive land for different purpose and so it's not subject to like it's part of this food supply

[00:40:50] chain so we can't tax farmers into oblivion I imagine it would be probably good so well yeah

[00:40:56] yeah so anyway there's a limited scope of the ability let's call it to to negotiate property taxes

[00:41:02] as so it's not really like an area of your of your your expense profile that you can do a lot with

[00:41:08] and so that's why I think investors should really care about it because on the way in you got to

[00:41:12] be like okay you know oh like if you're buying a property it's like oh the taxes are high it's like

[00:41:17] no oh the taxes are high you know because you're stuck with that forever yeah and they're always

[00:41:23] gonna be high because the assessment will likely continue going escalating on the same you know

[00:41:28] whereas if you can find like the same property like run like actually run a discounted cash flow

[00:41:34] on the difference of tax values between two identically comparable duplexes and be like oh

[00:41:40] that's the savings of the extra thousand dollars a year accounts to this much over the 25 years

[00:41:44] on them and own the home I mean now we're now we're actually thinking about things like a real

[00:41:49] estate investor yeah that's why I think property taxes matter and the other piece is as an investor

[00:41:55] is PITI right so lenders will look at principal interest taxes and shirts like that's those are

[00:42:02] the things that they did act from here when you're they're calculating your affordability and

[00:42:05] your what your ability to service debt so when we're looking at debt service coverage ratio the best

[00:42:10] and most important metric in the world ever but it is the most important metric this year because

[00:42:16] lenders are basically only funding deals that that hit their debt service coverage ratio

[00:42:23] these taxes get factored in and so if you're so yeah I might seem like an nominal thing right

[00:42:29] it's like oh it's a thousand bucks and I'm paying a million dollars it's a thousand dollar more

[00:42:34] than the comparable property that I offered on or whatever but that thousand dollars is a hundred

[00:42:40] dollars a month or whatever right let's say it's twelve hundred bucks is a hundred bucks a month

[00:42:44] that reduces your debt service ability by a hundred dollars a month that can push a deal on

[00:42:49] or off side like it sounds crazy you're like you're so not wrong though right so those little things

[00:42:54] those those marginal like that hundred dollars a month could literally be the difference in

[00:42:57] that's how tight they are and on the flip side that's why we see things like

[00:43:02] car payments truck payments I'm looking at you for truck payments or even like condo fees right

[00:43:09] condo fees oh the this condo fees only a hundred fifty dollars more than the last condo I looked at

[00:43:13] but yeah that that hundred fifty dollars can can put your GDS and your TDS out of whack right so

[00:43:18] any final thoughts on on taxes Dan no just that if my municipality is listening I would love it

[00:43:27] if they wanted to reduce my property taxes and if impact is listening I would love it if they

[00:43:30] wanted to reduce my assessment there you go okay if you are listening please grant Dan's wishes

[00:43:37] few pieces of closing advice go adopt a road because it sounds fun and fairly low maintenance

[00:43:44] or highway and make sure to go check out the law the links in the shunnels we've got a news letter

[00:43:51] that is it's getting revamped right now we have got the course and community in there which is

[00:43:56] growing and becoming a pretty special thing to be a part of we've got a bunch of other stuff in

[00:44:01] there meetups merch so go check out all the links in the shunnels click on them reach out

[00:44:07] you got any questions or concerns and if you adopt a highway let us know thanks so much for listening

[00:44:14] taught you soon the Canadian real estate investor podcast is for entertainment purposes only and it

[00:44:20] is not financial advice nick hill is a mortgage agent with premier mortgage center and a partner

[00:44:27] in the G and H mortgage group license number 10317 agent license m21004037 deno foch is a real estate broker

[00:44:39] licensed with rare real estate a member of the Canadian Real Estate Association the Toronto Real Estate

[00:44:46] Board and the Ontario Real Estate Association