Assessment capping needs to end
For a fair tax policy, homes assessed similar market values should pay the same property taxes. Under the capping assessment program (CAP), homes with similar market values, some on the same street, are now paying vastly different taxes throughout the province, including Cape Breton.
Assessment capping started in 2005 by freezing some residential assessments retroactive to 2001. It was the government response to assessment and tax hikes that followed a housing market boom, particularly in coastal resort areas and in more affluent neighbourhoods.
Municipal councils could have kept tax bills at the same level by decreasing municipal tax rates, but they did not. Both opposition parties endorsed the CAP.
Initially, the CAP exempted from taxation assessment value increases above 15 per cent. However, in response to lobbying from other taxpayers, this threshold was soon dropped to 10 per cent and then to the rate of inflation. As a result, most of the eligible housing stock in the province is now being capped.
After over a decade of capping, there is clear evidence that the CAP is deepening an inequitable tax system. Some homeowners are saving on taxes while other homeowners are paying extra to offset the tax savings. The program is shifting the tax burden from some homeowners to other homeowners.
Taxes paid vary depending on whether a home is ineligible (not owner-occupied, or nonresident owned), how long it has been capped and whether it was recently sold.
When a capped home is sold, the existing cap value is reset up to market value which becomes the new cap value for the home. This is transferring a huge tax burden on homebuyers, including young families buying homes for the first time. New home constructions, additions and renovations are also affected, as they too are taxed at full market value.
To illustrate, suppose a home with a cap value of $150,000 and a market value of $250,000 is sold. For a municipal tax rate of $1.20 per $100 of assessment, the tax bill for the previous homeowner would have been $1,800, whereas the bill for the new owner would be $3,000.
Another problem with the CAP is lack of transparency. Its tax impact is hidden. Most homeowners see any reduction in market value on assessment notices as evidence of tax savings. This is not necessarily so because tax bills also depend on the municipality’s tax rate. In fact, many end up paying more taxes than they would if the CAP was not in place.
A recent report commissioned by the Union of Nova Scotia Municipalities (UNSM), Property Valuation Services Corporation, and the Association of Municipal Administrators of Nova Scotia documented evidence of widespread unfairness in the tax system and recommended ending the CAP. The report was written by two of Canada’s leading scholars in municipal finance, Dr. Enid Slack and Dr. Harry Kitchen.
To rectify the tax system, Nova Scotia needs to return to market-value assessment, which is internationally accepted as the best way to distribute property taxes fairly.
Market value has its imperfections, including periodic volatility. Some CAP supporters point out that the program shielded low-income homeowners from losing homes when taxes were escalating. This may well be true. But the program is an inappropriate instrument for this because it also gives substantial tax relief to many of Nova Scotia’s wealthiest homeowners.
Appeals to end the CAP from the UNSM and others familiar with its shortcomings have so far been unsuccessful. To name a few reported in the media, those who have appealed include Greg Keefe, former Deputy Minister of Service Nova Scotia and Municipal Relations, CBRM Mayor Cecil Clarke, and former Port Hawkesbury Mayor Billy Joe MacLean.
Ending the CAP would require a gradual phase-in of market value, perhaps over a decade, to minimize the tax impact on homeowners with cap benefits. Also, homebuyers could be granted an immediate concession at the start of the phase-in by ending the practice of uncapping sold homes.
Better ways would be needed to protect taxpayers if the CAP is lifted. A range of options could be implemented, including stricter ground rules for low-income tax relief programs, tax deferrals, and possible smoothing out of spikes in assessment along with commensurate reductions in tax rates. Also, a “truth in taxation” measure as in some USA jurisdictions could be adopted for transparency and accountability in setting tax rates.
The hope is the CAP will be lifted at some point. Until then, unequal taxation of homes with similar market values will worsen with each passing year. Shingai Nyajeka, Sr. Halifax