Are Real Estate Taxes And Property Taxes The Same?

Property taxes and real estate taxes are two terms that are often used interchangeably, but they refer to different things. While they are both related to the ownership and maintenance of the property, they have distinct differences that can affect homeowners and investors in various ways. Understanding the nuances between these two types of taxes is essential for anyone who owns or is planning to purchase real estate.

Property Taxes and Real Estate Taxes in Canada

In Canada, property taxes and real estate taxes are the responsibility of the provincial and territorial governments. These taxes are levied on all real estate property, including residential, commercial, and industrial properties. Property taxes are assessed annually based on the property’s assessed value. The local municipality or government agency determines this value and considers the property’s location, size, and other factors. Property taxes fund local government services, such as schools, fire departments, and infrastructure.

On the other hand, real estate taxes are a type of tax levied on the sale or transfer of real estate property. These taxes are also collected by the provincial and territorial governments and are usually based on a percentage of the sale price of the property. The purpose of real estate taxes is to generate revenue for the government, and they are often used to fund a variety of programs and services.

The specific rules and regulations regarding property and real estate taxes in Canada can vary by province and territory. For example, some provinces may offer tax exemptions or reductions for certain types of properties or individuals, such as seniors or farmers. Depending on the property’s location, different rates and calculation methods may be used for property and real estate taxes.

How Property Taxes are Used in Canada

Property taxes generate revenue for local governments and fund essential public services, such as schools, fire departments, police departments, parks, and public transportation. Property taxes are a more stable source of revenue for local governments than other sources, such as sales or income taxes, which can fluctuate with economic changes. This stability allows local governments to plan and budget more effectively for the long term.

In addition to funding public services, property taxes also help to encourage responsible property ownership. When property owners are required to pay taxes on their property, they are incentivized to maintain and improve it to maximize its value. This, in turn, benefits the community by increasing property values and promoting economic growth.

Is Real Estate Tax the Same as Property Tax?

Taking that first step on the real estate ladder can mean a steep learning curve regarding financial terms and how they affect you. One common area of confusion for those entering the real estate market is the terms real estate and property taxes, which are often used interchangeably. So, the real question is, are “real estate taxes” and “property taxes” the same?

In short, real estate tax is a type of property tax.

While a property tax does apply to real estate, it can be used for items other than real estate, depending on your jurisdiction’s laws. That said, the most common property tax is paid on real estate, which is why the terms property tax and real estate tax can be used in reference to the taxes paid on real estate.

However, the term real estate can’t be used in reference to property tax paid on items that are not real estate.

Property Tax Rates in Canada

When researching property taxes – what they are and how they will affect your finances – you may come across the terms mill rate and mill levy. These terms relate to how your real estate tax is calculated. The mill levy is the tax rate imposed on your property value, with one ‘mill’ representing one-tenth of one cent. This means that if real estate is valued at $400,000, the associated mill rate would be $400. This then applies to the overall value of the jurisdiction and helps determine how much revenue is needed to run necessary community functions. This revenue is then passed onto the property owners in the region.

Calculating Property Tax Rates

Property taxes are calculated based on the value of the real estate property, both the land itself and any buildings on it. A property tax is a combined rate for municipal and provincial property tax rates. The rate is determined based on the property’s value and whether the real estate falls under the residential or non-residential category.

After the initial appraisal of the property when purchased, an assessment by an official tax assessor visits the property every one to five years to update the property’s value and adjust the property (or real estate) taxes accordingly. The assessor can determine the property tax and value of the property through three methods: by performing a sales evaluation, following the cost method, or estimating the amount of income that would be generated, should the property be rented.

A good way to see whether your property taxes are reasonable is by checking your tax card for comparable homes and their associated real estate taxes. Reducing your property taxes might be possible by looking for local and regional tax exemptions that apply to your property.

Factors That Can Affect Property Tax Rates

As a function of your local government, governmental changes can affect your property tax rate. Some of the common reasons why property tax rates may shift include:

Reductions in governmental revenue from grants or fees – Municipalities rely on the fees and grants allocated to them by provincial and federal governments. If the number of allocated funds changes, municipal property tax rates often shift accordingly to accommodate this change.

Increases in municipal spending – The flip side of reduced municipal revenue is increased spending. Though the opposite in most respects, this scenario also affects the real estate tax rate (almost always an increase).

Failure to pay property taxes – In some municipalities, penalties are associated with a property owner’s inability to pay the mandated taxes. As a result, the owner will often see an increase in the property taxes required as a function of a fixed penalty or an interest rate on the amount owing. Luckily, this factor is entirely in the hands of the property owner – as long as real estate taxes are wholly paid and on time, additional expenses can be avoided.

Exempt properties – Some properties are deemed exempt from the standard property tax rate for various reasons, but mainly because these properties have been considered valuable to society. Further drawing from the income of these properties would negatively impact these valuable contributors. Some examples of these properties could be farming residences, hospitals, churches, and schools.

Staying Aware of Property Taxes

Real estate taxes can seem like a fair amount of money to a property owner if you don’t know exactly where it’s going. However, property taxes paid are another source of income for governmental bodies. The money is then redirected to the various needs throughout the area, such as the construction and maintenance of schools, city amenities, emergency services and more. When you pay real estate taxes, you are contributing to your community services and infrastructure and, in turn, maintaining or even increasing the value of your home by creating a valuable community.

Once you have a strong understanding of property taxes, from how they are calculated to their purpose, the best way to ensure that you are paying the correct amount is by staying educated. This means staying up to date with your municipality’s changing rates and spending from year to year, finding out about any deductions you might be eligible for and having an active role in assessing your property.

Working with RE/MAX means having all the home and property owner resources at your fingertips. From buying and selling tips to housing market outlooks, you can make the most of your real estate decisions with RE/MAX.